Published: May 2015
Ruling period: 1 April 2014 to 31 March 2015

Ruling: Q1: Does Division 5 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986) apply to the reimbursement of entertainment expenditure incurred by a non-remunerated officer of an incorporated association? | A1: No. As the officeholder is not an employee the reimbursement of entertainment expenditure is not an expense payment fringe benefit. | Q2: Can the incorporated association claim input tax credits in respect of the entertainment expenditure incurred by the non-remunerated officer under Division 111 of the A New Tax System (Goods and Services Tax) Act 1999 (GSTA 1999)? | A2: No. Section 69-5 of the GSTA 1999 prevents input tax credits being claimed for non-deductible expenses. | Q3: Is the incorporated association entitled to claim input tax credits for travel, accommodation and meals provided to the officeholder? | A3: Yes. The association is entitled to claim input tax credits in respect of travel, accommodation and meal expenses incurred by the officeholder.

Relevant facts and circumstances: The officeholder is the president of an incorporated association. He/she was elected by the members of the association. As part of his/her duties he/she is required to meet with members, stakeholders, sponsors and potential sponsors. The officeholder incurs expenditure on meeting expenses that include light lunches and refreshments. Entertainment expenditure is reimbursed by the association and must be substantiated by the officeholder. The officeholder does not receive any other form of remuneration from the association. The association pays for airfares and accommodation expenses on behalf of the officer holder for official travel. The officeholder is reimbursed for meal expenses while on official travel.

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 32 | Section 32-5 | Section 32-10 | Fringe Benefits Tax Assessment Act 1986 Division 5 | Section 20 | Section 23 | Part XII | Subsection 136(1) | A New Tax System (Goods and Services Tax) Act 1999 Part 4-2 | Section 69-5 | Section 111-5 | Section 111-10 | Section 111-15 | Division 184 | Section 184-1

Reasons for decision: Summary: Section 20 of the FBTAA 1986 describes the circumstances which give rise to an expense payment benefit. Where a person (the provider) pays or reimburses an expense incurred by another person (the recipient), the making of that payment or reimbursement will be taken to constitute a benefit to the recipient. However a benefit is not a fringe benefit unless it is provided in respect of the employment of the employee. The phrase "in respect of" is defined in subsection 136(1) of the FBTAA 1986 in relation to the employment of the employee to include by reason of, by virtue of, or for or in relation directly or indirectly to, that employment. The FBTAA 1986 defines "current employee" as a person who receives, or is entitled to receive, salary or wages. The ATO Factsheet "Volunteers and Tax" provides guidance on whether members of non-profit organisations are considered to be employees or volunteers. Whether a payment is assessable income in the hands of a volunteer depends on the nature of the payment and the recipient's circumstances. Generally, an individual is considered to be an employee if they: • Are paid for time worked • Receive paid leave (for example, sick, annual or recreation, or long service leave) • Are not responsible for providing the materials or equipment provided to do their job • Must perform the duties of their position • Agree to provide their personal services • Work hours set by agreement or award • Are recognised as part and parcel of the payer's 'business' • Do not take commercial risks and cannot make a profit or loss from the work performed. Receipts which are earned, expected, relied upon and have an element of periodicity, recurrence or regularity are treated as assessable income. By contrast, payments of honorariums, allowances and reimbursements made by non-profit organisations to volunteers will not be regarded as salary or wages if: • The payment is to meet incurred or anticipated expenses • The payment has no connection to the recipient's income producing activities or services • The payment is not received as remuneration or as a consequence of employment • The payment is not relied upon or expected by the recipient for day-to-day living • The payment is not legally required or expected • There is no obligation on the part of the payer to make the payment • The payment is a token amount compared to the services provided or expenses incurred by the recipient. The meaning of the term "employee" is discussed in detail in Taxation Ruling TR 2005/16. The ruling provides guidance as to whether an individual is paid as an employee for the purposes of section 12-35 of Schedule 1 to the Taxation Administration Act 1953 (PAYG withholding). Taking into account the factors listed above, it is considered that the officeholder is not an employee of the association and that the reimbursement of entertainment expenditure is not in respect of the employment of the officeholder. As the reimbursement is not made to an employee an expense payment fringe benefit will not arise. Division 111 of the GSTA 1999 allows entities to claim input tax credits for certain reimbursements made to employees in respect of creditable acquisitions. However subsection 111-5(3) of the GSTA 1999 treats certain acquisitions as not being creditable acquisitions: "(3) However, the acquisition is not a creditable acquisition: a) to the extent (if any) that: i. The employee, associate, agent, officer or partner is entitled to an input tax credit for acquiring the thing acquired in incurring the expense; or ii. The acquisition would not, because of Division 69, be a creditable acquisition if you made it;" Division 69 of the GSTA 1999 prevents non-deductible expenses from being treated as creditable acquisitions. Subsection 69-5(3) of the GSTA 1999 states that an acquisition is a non-deductible expense if a deduction is not allowable under Division 8 of the ITAA 1997 because of the operation of certain provisions in the ITAA 1997. Paragraph (f) of the subsection lists Division 32 of the ITAA 1997 which denies a deduction for entertainment expenses. Expenditure in relation to food and drink comes within the meaning of entertainment as defined in subsection 32-10(1) of the ITAA 1997. Accordingly, you are unable to claim input tax credits for reimbursements of entertainment expenditure. The president of the association is required to travel as part of his/her duties as an officeholder of the association and incurs expenses for meals. The association then reimburses the officeholder for the expenses incurred. Travel and accommodation costs are paid for by the association. The meals consumed while travelling do not constitute the provision of entertainment. Therefore the reimbursement is treated as consideration for an acquisition the association makes from the president under subsection111-5(1) of the GSTA 1999. As the acquisition is a creditable acquisition, the association is entitled to input tax credits equal to 1/11 of the amount of the reimbursements (subsection 111-10(1) of the GSTA 1999). The expenses incurred for travel and accommodation are also treated as creditable acquisitions which entitle the association to claim input tax credits for these payments.