Private ruling: Entertainment facility leasing expenses
Published: April 2014
Ruling period: 1 April 2014 - 31 March 2015 | 1 April 2015 - 31 March 2016 | 1 April 2016 - 31 March 2017
Date scheme commenced: 1 April 2014

Ruling: Q1: Will the reimbursement by the employer of the cost of used credits paid by the employees in respect of holiday resort accommodation be disregarded as being wholly or partly attributable to entertainment facility leasing expenses for the purpose of Step 1 in the method statement in subsection 5B(1L) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)? | A1: Yes | Q2: Will the reimbursement by the employer of the cost of cleaning fees paid by the employees in respect of holiday resort accommodation be disregarded as being wholly or partly attributable to entertainment facility leasing expenses for the purpose of Step 1 in the method statement in subsection 5B(1L) of the FBTAA? | A2: Yes

Relevant facts and circumstances: The employer is an endorsed public benevolent institution (PBI). The employer offers certain employees valid salary sacrifice arrangements under the terms of which the employer will reimburse employees the costs of: a) holiday credits b) cleaning fees Holiday credits Participants who join the holiday resort club entity become 'resort members'. Resort members purchase holiday credits from the club at the date of joining. Holiday credits are used or otherwise exchanged by the resort members, through the club, usually for the temporary right to stay at the club's premises held by the club or its affiliates. Resort members may also join a credit exchange company, to exchange their holiday credits for stays at other similar accommodation held by other relevant timeshare organisations. A resort member must maintain a minimum number of holiday credits to remain within the club. When holiday credits are purchased their quantity is credited to the resort member's 'personal account' with the club. When the resort member makes a reservation for holiday accommodation the number of holiday credits needed for the particular reservation is automatically withdrawn from the resort member's personal account balance. Each year, on the anniversary date, the full amount of holiday credits originally purchased by the resort member is again made available. Resort members have the right to use, rent, lend or will their holiday credits (subject to certain restrictions). Resort members may also sell or transfer their holiday credits by private agreement (subject to certain restrictions). Housekeeping fees A housekeeping service is provided at the end of each stay at the resort club's accommodation. No housekeeping fees are incurred by a resort member unless holiday credits have been first used or otherwise exchanged. Resort members are entitled to one free housekeeping service which occurs at the end of the first continuous holiday credit stay in the same accommodation at the one location. There is an entitlement to one additional free housekeeping service for additional holiday credits owned. For those housekeeping services not covered by free housekeeping, the housekeeping fee are charged according to the accommodation taken and is paid by the resort member.

Relevant legislative provisions: Fringe Benefits Tax Assessment Act 1986 subsection 5B(1L) | Fringe Benefits Tax Assessment Act 1986 section 57A | Fringe Benefits Tax Assessment Act 1986 subsection 136(1) | Income Tax Assessment Act 1997 section 32-10

Reasons for decision: Summary: Section 57A of the FBTAA provides that benefits provided by certain employers are generally exempt from fringe benefits tax (FBT). Subsection 57A(1) of the FBTAA states: 57A(1) [Employer is public benevolent institution] Where the employer of an employee is a registered public benevolent institution endorsed under subsection 123C(1), a benefit provided in respect of the employment of the employee is an exempt benefit. Subsection 5B(1E) of the FBTAA limits the extent of the above exemption to $30,000 grossed-up taxable value per employee. The value of any benefits provided in excess of this threshold are liable for fringe benefits tax subject to subsection 5B(1L). The operation of Step 1 of the method statement contained in subsection 5B(1L) specifically disregards certain benefits from the calculation and therefore those benefits will not be included in the employer's fringe benefits taxable amount. Those disregarded benefits are: • Benefits that constitute the provision of meal entertainment • Car parking fringe benefits; and • Benefits whose taxable values are wholly or partly attributable to entertainment facility leasing expenses. Therefore, if the employer provides any of the three benefits above, those benefits are disregarded from the calculation in subsection 5B(1)L. The employer allows certain employees to enter into a valid salary sacrifice arrangement, under which the employer reimburses employees for expenses incurred by the employee in respect of holiday credits. The applicant submits that when the holiday credits are used by the employee they will meet the definition of entertainment facility leasing expenses and will therefore be disregarded. 'Entertainment facility leasing expenses' are defined in subsection 136(1) of the FBTAA: Expenses incurred by the person in hiring or leasing: a) A corporate box; or b) Boats, or planes, for the purpose of the provision of entertainment, or c) Other premises or facilities for the purpose of the provision of entertainment; but does not include so much of any of such expenses that: d) Is attributable to the provision of food or drink; or e) Is attributable to advertising and is an allowable deduction for the person under the Income Tax Assessment Act 1936 or the Income Tax Assessment Act 1997 . For at least part of the reimbursement to come within this definition, it is necessary for at least part of the reimbursement to be of: • Expenses incurred in hiring or leasing; • A premise or facility that comes within paragraphs (a) to (c); but • It will not include an expense that comes within paragraphs (d) and (e). | Detailed Reasoning - Did the reimbursement include a hire or lease?: Under the definition of 'entertainment facility leasing expenses', an expense must be incurred by the person in 'hiring or leasing ...' As the word 'hiring' is not defined in the FBTAA it has its natural meaning, taken in the context in which it appears in the legislation. ATO Interpretive Decision ATO ID 2009/45 Fringe Benefits Tax Entertainment Facility Leasing Expenses: private function room and hotel room expenses discusses entertainment facility leasing expenses and refers to The Macquarie Dictionary definition of the word 'hire' as: verb (t) (hired, hiring) 1. to engage the services of for payment: to hire a clerk. 2. to engage the temporary use of for payment: to hire a car. 3. Also, hire out. to grant the temporary use of, or the services of, for a payment. Subsection 136(1) of the FBTAA defines 'leased': means let on hire (including a letting on hire that is described in the relevant agreement as a lease) under an agreement other than a hire-purchase agreement. In this case, when holiday credits are purchased their quantity is credited the resort member's personal account and the number of holiday credits that are needed for a particular reservation is automatically withdrawn. Holiday credits are used or otherwise exchanged for the temporary right to stay at accommodation held by the resort club. However, if a resort member joins a credit exchange company the holiday credits can also be used or otherwise exchanged for temporary stays at similar accommodation held by other timeshare organisations. In consideration of ATO ID 2009/45 and the definitions provided, it is apparent that the terms 'hiring' or 'leasing' require a definite activity to have been undertaken towards gaining the use of a thing or service that is being hired or leased. Therefore, the requirement regarding the necessary hiring or leasing expenses being incurred is met only when the holiday are actually used or otherwise exchanged for a stay at accommodation held by the resort club, its affiliates or for similar accommodation held by other timeshare organisations. Just holding or acquiring the holiday credits without using or exchanging them would not satisfy the requirement. | Detailed Reasoning - Other premises or facilities: Under the definition of 'entertainment facility leasing expenses', the hire or lease must be of a corporate box, boat, plane or other premises or facilities. The words 'premises' or 'facilities' are not defined in the FBTAA and therefore have their natural meaning, taken in the context that they appear in the legislation. ATO ID 2009/45 refers to the Macquarie Dictionary which defined the words 'premises' and 'facility to mean: premise noun 2. (plural) the property forming the subject of a conveyance. a tract of land. a house or building with the grounds, etc., belonging to it. devastated facility noun (plural facilities) 9. a building or complex of buildings, designed for a specific purpose, as for the holding of sporting contests. In ATO ID 2009/45 it was considered that a hotel room and a private function room fell within the definition of 'other premises or facility': It is considered that the use of the words 'other premises or facility' derives meaning ejusdem generis as having similar characteristics to a corporate box. Hiring or leasing of a corporate box would generally only involve the hiring or leasing of part of premises or a facility. For example, the corporate box is only part of a sporting stadium complex. However, a corporate box is a separate or distinct area or room which is in fact able to be hired as a separate room or distinct area. The hiring or leasing of a separate room or distinct area for other hospitality purposes such as an end of year corporate event at a city hotel would be considered similar to a corporate box arrangement. It is considered that these would be premises or facilities for the purposes of the definition of 'entertainment facility leasing expenses'. When a private function room in a club or a separate hotel room at a hotel have been leased or hired, they will be premises or facilities for the purposes of the definition of 'entertainment facility leasing expenses'. In consideration of the above, the accommodation held by the resort club, its affiliates or similar accommodation held by other timeshare organisations are separate or distinct areas within a larger premises or facilities and consequently, will fall within the definition of 'premises' or 'facility' for the purpose of the definition of entertainment facility leasing expenses. | Detailed Reasoning - For the purpose of the provision of entertainment: Under the definition of 'entertainment facility leasing expenses' the expenses incurred on hiring or leasing the premises or facilities must be 'for the purpose of the provision of entertainment'. Subsection 136(1) of the FBTAA defines 'entertainment': entertainment has the meaning given by section 32-10 of the Income Tax Assessment Act 1997 . Section 32-10 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that 'entertainment' means: (a) entertainment by way of food, drink or *recreation; or (b) accommodation or travel to do with providing entertainment by way of food, drink or *recreation. Subsection 995-1 of the ITAA 1997 provides the meaning of 'recreation': recreation includes amusement, sport or similar leisure-time pursuits. In relation to the use of the accommodation held by the resort club, its affiliates or similar accommodation held by other timeshare organisations, it is relevant to consider paragraph 32-10(1)(a) of the ITAA 1997 as to whether the use of the accommodation is for the purposes of providing entertainment by way of recreation. While 'recreation' is defined, the words 'entertainment by way of recreation' is not defined. As these words are not defined, they have their natural meaning, taken in the context in which they appear in the legislation The word 'entertainment', which is key to the operation of the relevant words, is defined in the Macquarie Dictionary to mean: 1. the act of entertaining; agreeable occupation for the mind; diversion, or amusement. 2. something affording diversion or amusement, especially an exhibition or performance of some kind. 3. hospitable provision for the wants of guests. Where an employee has the use of the accommodation held by the resort club, its affiliates or similar accommodation held by other timeshare organisations, whilst on holidays, it is a leisure-time pursuit which is recreation as defined in the ITAA 1997. From the information provided, the accommodation is located at recognised holiday destination sites. Therefore, the use of the accommodation is also something affording diversion or amusement and is entertainment within its natural meaning. The use of the accommodation held by the resort club, its affiliates or similar accommodation held by other timeshare organisations, is entertainment by way of recreation under paragraph 32-10(1)(a) of the ITAA 1997. In addition, the accommodation held by the resort club, its affiliates or similar accommodation held by other timeshare organisations, occupied whilst on holidays, is accommodation. Such accommodation can fall within entertainment under paragraph 32-10(1)(b) of the ITAA 1997, being accommodation to do with providing entertainment by way of recreation. Further, Taxation Determination TD 94/55 Income tax: when does providing an item of property constitute the provision of entertainment within the meaning of subsection 32-10(1) of the Income Tax Assessment Act 1997? states that in determining whether providing an item of property constitutes entertainment, regard should be had to all the circumstances of the case. In particular, regard should be given to the character of the entertainment to be derived from the item of property provided. Specifically, in Example 2 in TD 94/55, costs incurred in providing holiday accommodation are incurred in providing property that would constitute the provision of entertainment. It is considered that the reimbursement of used holiday credits for staying in the accommodation held by the resort club, its affiliates or similar accommodation held by other timeshare organisations are expenses incurred in hiring or leasing premises or facilities for the purpose of providing entertainment. | Detailed Reasoning - It will not include an expense that comes within paragraphs (d) and (e).: From the information provided, the expense is in relation to holiday credits used to stay at accommodation held by the resort club, its affiliates, or similar accommodation held by other timeshare organisations. No part of the expense is in relation to food, drink or deductible advertising. | Detailed Reasoning - Conclusion: In applying the tests discussed above, it can be concluded that the taxable value of this benefit is wholly attributable to 'entertainment facility leasing expenses' as: • the expense is incurred by a person; • the expense is incurred in hiring or leasing; • the hire or lease is of a premise or facility; • the expense is for the purpose of entertainment; and • the benefit does not include the provision of food or drink and is not attributable to deductible advertising. Therefore, the reimbursement of used holiday credits will not be included in the calculation of the employee's individual subsection 5B (1L) amount. | Detailed Reasoning - Question 2: Housekeeping fees are paid by resort members for those housekeeping fees not covered by free housekeeping. The housekeeping benefit will be disregarded from the calculation in 5B(1L) of the FBTAA if the benefit is wholly or partly attributable to an entertainment facility leasing expense. The basic requirements being: • There is either a 'hiring' or 'leasing' expense • Those hiring or leasing expenses are in respect of one, or more, of the premises or facilities listed in the 'entertainment facility leasing expense" definition • These hiring or leasing expenses are for the purpose of the provision of entertainment • Any part of such hiring or leasing expenses that is attributable to the provision of food or drink is not included. | Detailed Reasoning - Hiring or leasing expense: The payment of housekeeping fees are usually incurred by a resort member for housekeeping services provided in respect of a recently vacated resort club accommodation where these housekeeping services are not otherwise covered by free housekeeping. The payment of housekeeping fees may also be incurred by the resort member in some other limited circumstances where the housekeeping services are not otherwise covered by free housekeeping. It is considered that the expense incurred under such circumstances neither accord with the dictionary definition of 'hire' nor the FBTAA definition of 'leased'. Therefore this requirement is not met. | Detailed Reasoning - Premises or facilities in respect of entertainment facility leasing expense: The expenses incurred are in relation to accommodation held by the resort club, which would fall within the description of 'premises' or 'facilities.' Nonetheless, the relevant expenditure has been determined above as not being either the 'hiring' or 'leasing' of any such 'premises' or 'facilities' and, therefore, this requirement is not met. | Detailed Reasoning - For the purpose of the provision of entertainment: The expenses incurred are not for the provision of entertainment as defined in section 32-10 of the ITAA 1997, therefore this requirement is not met. | Detailed Reasoning - Not attributable to food or drink: The expenses incurred are not in respect of either food or drink, so this requirement is met. | Detailed Reasoning - Conclusion on application of entertainment facility leasing expense requirements to housekeeping fees: Expenses incurred in respect of housekeeping fees are not entertainment facility leasing expenses as not all of the necessary requirements have been met. | Detailed Reasoning - Are housekeeping fees 'partly attributable' to an entertainment facility leasing expense?: Step 1 in the method statement in paragraph 5B(1L) of the FBTAA states that benefits whose taxable values are 'wholly or partly attributable' to entertainment facility leasing expenses are to be disregarded. Therefore, even though it has been determined above that the housekeeping fees are not 'wholly' attributable to entertainment facility leasing expenses, they may still be 'partly' attributable to entertainment facility leasing expenses. As stated above, the payment of housekeeping fees are only incurred by a resort member for housekeeping services provided in respect of a recently vacated resort club accommodation where these housekeeping services are not otherwise covered by free housekeeping. No housekeeping fees are incurred by a resort member unless holiday credits have been first used or otherwise exchanged for a stay at the accommodation held by the resort club or similar accommodation. Therefore, housekeeping fees incurred for housekeeping services provided under such circumstances are sufficiently related to those holiday credits constituting entertainment facility leasing expenses to be considered 'partly attributable' to an entertainment facility leasing expense.