Private ruling: Fringe benefits tax
Published: July 2014
Ruling period: 1 April 2013 - 31 March 2014
Date scheme commenced: 1 April 2013

Ruling: Q1: Does the benefit provided to employees from the annual event fall under the minor benefits exemption in section 58P of the Fringe Benefits Assessment Act 1986 ? | A1: Yes

Relevant facts and circumstances: The employer holds an annual event at an external venue for employees, suppliers and clients. The event is only held for one night a year. Food and drinks (alcohol) are served at the event. The sole purpose of the event is to network with clients and suppliers and enhance working relationships. The benefit per attendee is under $X. The employer does provide other meal benefits, however has not made an election under Division 9A of the FBTAA. There are no associated benefits.

Relevant legislative provisions: Fringe Benefits Tax Assessment Act

Reasons for decision: Summary: The FBTAA specifies that certain benefits are exempt benefits. Section 58P of the FBTAA provides that a minor benefit will be an exempt benefit when the following conditions are met: Where: (a) a benefit (in this section called a minor benefit ) is provided in, or in respect of, a year of tax (in this section called the current year of tax ) in respect of the employment of an employee of an employer; (b) the benefit is not an airline transport benefit; (c) in the case of an expense payment benefit, a property benefit or a residual benefit - if the minor benefit were an expense payment fringe benefits, a property fringe benefit or a residual fringe benefit, as the case may be, in relation to the employer, the expense payment fringe benefit, the property fringe benefit or the residual fringe benefit, as the case requires, would not be an in-house fringe benefit; (d) in the case of a tax-exempt body … (e) the notional taxable value of the minor benefit in relation to the current year of tax is less than $300; and (f) having regard to: (a) the infrequency and irregularity with which associated benefits, being benefits that are identical or similar to: 1) the minor benefit; or 2) benefits provided in connection with the provision of the minor benefit; have been or can reasonably be expected to be provided; (b) the amount that is, or might reasonably be expected to be, the sum of the notional taxable values of the minor benefit and any associated benefits, being benefits that are identical or similar to the minor benefit, in relation to the current year of tax or any other year of tax; (c) the amount that is, or might reasonably be expected to be, the sum of the notional taxable values of any other associated benefits in relation to the current year of tax or any other year of tax; (d) the practical difficulty for the employer in determining the notional taxable values in relation to the current year of tax of: 1) if the minor benefit is not a car benefit - the minor benefit; and 2) if there are any associated benefits that are not car benefits - those associated benefits; and (e) the circumstances surrounding the provision of the minor benefit and any associated benefits including, but without limiting the generality of the foregoing: 1) whether the benefit concerned was provided to assist the employee to deal with an unexpected event; and 2) whether the benefit concerned was provided otherwise than wholly or principally by way of a reward for services rendered, or to be rendered, by the employee; it would be concluded that it would be unreasonable to treat the minor benefit as a fringe benefit in relation to the employer in relation to the current year of tax; the minor benefit is an exempt benefit in relation to the current year of tax. The benefit provided to employees from the annual event satisfies paragraph 58P(1)(a) to (d) of the FBTAA: • The benefit is provided to employees in respect of their employment in the 2014 FBT year. • The benefit is not an airline transport benefit. • The benefit is not an in-house benefit. • The employer is not a tax-exempt body. TR 2007/12 Fringe benefits tax: minor benefits summarises section 58P of the FBTAA into two relevant factors in determining whether a minor benefit is an exempt benefit: • The notional taxable value of the minor benefit is less than $300 • It would be concluded that it would be unreasonable, having regard to the specified criteria in paragraph 58P(1)(f) to treat the minor benefit as a fringe benefit. | Detailed Reasoning - Notional taxable value: The term 'notional taxable value' is defined in subsection 136(1) of the FBTAA: 'notional taxable value' in relation to a benefit provided in, or in respect of, year of tax in respect of the employment of an employee of an employer, means the amount that, if it were assumed that: (a) In the case of a car benefit - the car benefit was a residual benefit; and (b) In all cases - the benefit was a fringe benefit in relation to the employer in relation to the year of tax; would be the taxable value of the fringe benefit in relation to the year of tax Paragraph 153 - 154 of TR 2007/12 states: 153. To be considered an exempt benefit for the purposes of section 58P the benefit must first have a notional taxable value of less than $300. 154. This 'threshold test' applies to each minor benefit. It is not a limit on the total value of minor benefits that can be provided to an individual employee Paragraph 186 of 2007/12 provides that in most cases, except minor car benefits, the notional taxable value of the minor benefit will be what the employer has incurred in obtaining the benefit. In this case, the employer will be holding an annual event were its employees can network with the employer's clients and suppliers. At the event, food and drink will be served. The benefit is under the $300 threshold. | Detailed Reasoning - Unreasonable to treat a minor benefit as a fringe benefit: Fringe benefits tax- a guide for employers states that the following five criteria need to be considered when deciding if it would be unreasonable to treat the minor benefit as a fringe benefit: 1. The infrequency and irregularity with which associated benefits, being benefits that are identical or similar to the minor benefit and benefits given in connection with the minor benefit are provided. The more frequently and regularly associated benefits are provided, the less likely that the minor benefit will qualify as an exempt benefit. 2. The total of the notional taxable values of the minor benefit and identical or similar benefits to the minor benefit. The greater the total value of the minor benefit and identical or similar benefits, the less likely it is the minor benefit will qualify as an exempt benefit. 3. The likely total of the notional taxable values of other associated benefits - that is, those provided in connection with the minor benefit. For example, where a meal, which is a minor benefit, is provided in connection with a night's accommodation and taxi travel, which themselves may or may not be a minor benefit, the total of their taxable values must be considered. The greater the total value of other associated benefits, in this case being the accommodation and the taxi travel, the less likely it is that the minor benefit will qualify as an exempt benefit. 4. The practical difficulty in determining what would be the notional taxable value of the minor benefit and any associated benefits. This would include consideration of the difficulty for you in keeping the necessary records in relation to the benefits. 5. The circumstances in which the minor benefit and any associated benefits were provided. This would include consideration as to whether the benefit was provided as a result of an unexpected event, and whether or not it could be considered principally as being in the nature of remuneration. If, after considering the five criteria, you conclude that it would be unreasonable to treat the benefits as a fringe benefit, the benefit will be an exempt benefit. TR 2007/12 provides an example of an employer provided Christmas party at paragraph 31-34: 31. An employer, which is not a tax-exempt body, invites its employees to attend a Christmas party at a local restaurant. 32. it is the employer's policy to provide employees with only one social function for the year. Employees, partners and children are also able to attend. 33. An employee attends and is accompanied by their partner and two children. 34. Whilst the total cost to the employer for the employee, partner and two children far exceeds the minor benefits threshold, the cost per person attending the Christmas party is less than $300. TR 2007/12 goes on to discuss at paragraph 35-41 that on balance, having regard to each of the five factors, the Christmas party would be an exempt benefit. The Christmas party is provided infrequently but on a regular basis and including associated benefits (to the partner and children) it so not a substantial cost to the employer. Further there would be no difficulties in determining the value of the benefit and the benefit was not provided to deal with an unexpected event. The benefit is also not a reward for services. The example concludes that on balance it would be unreasonable to treat the benefit as a fringe benefit. Paragraph 42 of TR 2007/12 goes on to state that the outcome would be the same for any annual party or celebration. Applying the five factors to this case, it is evident that the annual event would be a similar event to a Christmas party : (i) Expenses in relation to the event is not frequently provided, however it may be provided on a yearly basis; (ii) the value of the benefit in the current year as well as in other years will not be substantial; (iii) there are no other associated benefits; (iv) there is no difficulty in determining what would be the notional taxable value of the minor benefit and any associated benefits as the employer has kept records of the actual costs; and (v) the payment is neither provided as a result of an unexpected event, nor as a reward for services rendered by the employee. The event is a networking opportunity for employees, clients and suppliers. On balance, having regard to the various criteria in subparagraphs of 58P(1)(f)(1) - 58P(1)(f)(v) of the FBTAA, it can be concluded that it would be unreasonable to treat the minor benefits provided as a fringe benefit.