Private ruling: fringe benefits tax and income tax treatment of reimbursements for employee food and drink expenses
Published: August 2017
Ruling period: Fringe benefits tax year ending 31 March 2017
Date scheme commenced: 1 April 2016

Ruling: Q1: Are reimbursements that you make to your employees, in relation to food and drink expenses incurred whilst travelling in the course of performing their employment duties, fringe benefits under the Fringe Benefits Tax Assessment Act 1986 (FBTAA)? | A1: Yes | Q2: If the answer to question 1 is yes, under the FBTAA, will the 'otherwise deductible' rule apply to reduce the taxable value of the benefit to nil? | A2: No

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You are a business and have offices located across Australia. Your employees travel to attend related entity offices for meetings. The employees do not stay overnight but leave very early and return very late. The normal meal periods encompassed whilst the employees are travelling may include breakfast, lunch and dinner and refreshments during the day. Whilst travelling, the employees purchase their own food and drink and are then reimbursed by you upon presentation of their receipts. The yearly travel reimbursement of each of the employees is over $300. You do not pay the employees an overtime allowance or other bona-fide allowance. The employees are on salaries that take into account the travel requirements for their position. You have previously treated these reimbursements to employees as travel expenses or entertainment expenses.

Relevant legislative provisions: Fringe Benefits Tax Assessment Act 1936 Subsection 20(b) | Section 24 | Section 37AD | Subsection 136(1) | Income Tax Assessment Act 1997 Section 8-1

Reasons for decision: Summary: The reimbursements of your employees' food and drink costs are in respect of the employment of the employees, and are not meal entertainment. The benefits are expense payment fringe benefits under Division 5 of the FBTAA. | Detailed Reasoning - Detailed reasoning: Reimbursement of expenses Subsection 136(1) of the FBTAA defines the term 'fringe benefit'. Essentially, a fringe benefit is a benefit provided to an employee, by their employer, in respect of the employee's employment. Subsection 20(b) of the FBTAA says that where an employer reimburses an employee for expenses they incur, the reimbursement is considered to be an expense payment benefit. Where the benefit is a 'fringe benefit' in accordance with the definition in subsection 136(1) of the FBTAA, the benefit will be an expense payment fringe benefit and the taxable value of the benefit will be calculated in accordance with Subdivision B of Division 5 of the FBTAA. However, where a reimbursement amounts to the provision of meal entertainment (as defined in section 37AD of the FBTAA) an employer may elect for Division 9A to apply for a fringe benefits tax (FBT) year. Is the reimbursement the provision of meal entertainment? Under section 37AD of the FBTAA, a reference to the provision of meal entertainment is a reference to the provision of: Entertainment by way of food or drink; or Accommodation or travel in connection with, or for the purpose of, facilitating, entertainment to which paragraph (a) applies, or The payment or reimbursement of expenses incurred in providing something covered by paragraph (a) or (b); Whether or not: Business discussions or business transactions occur; or In connection with the working of overtime or otherwise in connection with the performance of the duties of any office or employment; or For the purposes of promotion or advertising; or At or in connection with a seminar' Taxation Ruling TR 97/17 Income tax and fringe benefits tax: entertainment by way of food and drink (TR 97/17) looks at the concept of what entertainment is, in relation to the provision of food or drink, for the purposes of the relevant provisions in the FBTAA and the Income Tax Assessment Act 1997 (ITAA 1997). TR 97/17 explains that where food and drink is provided to employees travelling in the course of performing their employment duties, the food and drink is not provided by the employer in order to confer entertainment on that employee. In the absence of some supplementary entertainment (such as a floor show), the employee's meal does not have the character of entertainment (paragraph 21). Further, although alcohol generally has social connotations, providing alcohol will not automatically amount to the provision of meal entertainment (TR 97/17, paragraphs 63-67). As discussed in paragraph 67, where a travelling employee consumes wine with an evening meal at a restaurant, it is impractical to suggest that the drinking of wine changes the nature and purpose of the meal to that of 'entertainment'. Application to your circumstances You reimburse your employees for the cost of food and drink purchased whilst travelling in the course of performing their employment duties. As such, the reimbursements are in respect of the employment of the employees. The reimbursement is an expense payment fringe benefit under Division 5 of the FBTAA. As the food and drink is not provided by you to entertain your employees, the reimbursements to your employees are not 'meal entertainment', and you cannot elect to apply Division 9A of the FBTAA in respect of these benefits. | Detailed Reasoning - Issue 1 - Question 2: If the answer to question 1 is yes, under the FBTAA, will the 'otherwise deductible' rule apply to reduce the taxable value of the benefit to nil? | Summary: As the food and drink expenses would not be deductible to the employees, the 'otherwise deductible' rule does not apply, and the taxable value of the expense payment fringe benefits cannot be reduced to nil. | Detailed Reasoning - Detailed reasoning: As discussed in question 1 above, the taxable value of an expense payment fringe benefit is calculated in accordance with the methods set out in Subdivision B of Division 5 of the FBTAA. According to these methods the taxable value of an expense payment fringe benefit can be reduced in certain circumstances by using the otherwise deductible rule set out in section 24 of the FBTAA. Essentially the otherwise deductible rule will reduce the taxable value of the benefit by the amount that the employee would have been entitled to claim as an income tax deduction if the expense had not been reimbursed by you. Therefore in order to determine whether the otherwise deductible rule would apply to reduce the taxable value of the fringe benefits you need to consider whether the employees would be entitled to claim deductions under the Income Tax Assessment Act 1936 (ITAA 1936) or ITAA 1997, had the expense not been reimbursed. Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they: Are incurred in gaining or producing your assessable income, or Are necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income. However, no deduction is allowed for expenses to the extent to which they are of a capital, private or domestic nature, are used to produce exempt income or non-assessable non-exempt income or are specifically prevented from being deducted by a provision of the ITAA 1997 or ITAA 1936. Deductibility of food and drink Various court decisions have concluded that, generally, accommodation and food expenses incurred are essentially living expenses of a private or domestic nature and therefore not deductible ( FC of T v Cooper 91 ATC 4396; (1991) 29 FCR 177 ( Cooper's case ); Federal Commissioner of Taxation v Toms 20 ATR 466; 89 ATC 4373). Taxation Ruling TR 95/18 - Income tax: employee truck drivers - allowances, reimbursements, and work-related deductions (TR 95/18) discusses the deductibility of work-related meal expenses for employee truck drivers at paragraphs 91-100, the principles of which can be applied generally to all employees . Paragraph 92 of TR 95/18 discusses the Full Federal Court (FFC) decision in Cooper's case. In Cooper's case , a professional footballer had been instructed to consume large quantities of food during the off-season to ensure his weight was maintained. By majority, the FFC found that the cost of additional food, to add to the weight of the taxpayer, was not allowable. Hill J (FCR at 199-200; ATC at 4414; ATR at 1636) said: 'The income-producing activities to be considered in the present case are training for and playing football. It is for these activities that a professional footballer is paid. The income-producing activities do not include the taking of food, albeit that unless food is eaten, the player would be unable to play. Expenditure on food, even as here "additional food" does not form part of expenditure related to the income-producing activities of playing football or training.' Hill J went on to say (FCR at 201; ATC at 4415; ATR at 1638): 'Food and drink are ordinarily private matters, and the essential character of expenditure on food and drink will ordinarily be private rather than having the character of a working or business expense. However, the occasion of the outgoing may operate to give to expenditure on food and drink the essential character of a working expense in cases such as those illustrated of work-related entertainment or expenditure incurred while away from home.' Extended working days Paragraph 95 of TR 95/18 states a deduction is not allowable for the cost of food or meals consumed while on duty, even when required to work long hours, as the costs are considered to be private in nature. Administrative Appeals Tribunal (AAT) Case Y8 91 ATC 166; AAT Case 6587 (1991) 22 ATR 3037 ( Case Y8 ) addressed this issue. Case Y8 involved a police officer who claimed deductions for the cost of meals while performing special duties away from his normal place of residence. The officer's special duties were 'tagged on' at the end of his normal duties, so that on such occasions he was prevented from having his breakfast, lunch and dinner at home. It was held that the cost of these meals was private in nature and no deduction was allowable (TR 95/18 paragraph 96). In Case Y8 , Dr Gerber (Deputy President) referred to Case U148 87 ATC 868; AAT Case 105 (1987) 18 ATR 3744 in which a truck driver was allowed a deduction for the cost of certain meals bought 'on the road', and where on occasion the taxpayer's working day lasted between 12 and 18 hours. In departing from the decision made in Case U148, Dr Gerber provided the following reasoning (ATC at 168; ATR at 3040): 'To the extent that Senior Member Roach allowed the expenditure on meals taken "on the road" on the basis that they were "not unreasonable", I must regretfully part company with him. "Reasonableness" has not yet, as far as I am aware, been used as a litmus test to determine "the extent to which (expenditures) are incurred in gaining or producing the assessable income" or were of a private or domestic nature. Catching a bus to work is not "unreasonable", but it does not make the bus fare an allowable deduction ( Lunney v FC of T (1957-58) 100 CLR 478). It is also "reasonable" for working mothers to engage babysitters. However the sitter's fees thus incurred are not deductible ( Lodge v FC of T 72 ATC 4174).' The ATO view in in TR 95/18 is similarly expressed in Taxation Ruling TR 1999/10 Income tax and fringe benefits tax: Members of Parliament - allowances, reimbursements, donations and gifts, benefits, deductions and recoupments (TR 1999/10). TR 1999/10 explains that for Members of Parliament a deduction is not allowable for the cost of meals consumed by a Member when they are not travelling overnight, even when their working day is extended: 222. A deduction is not allowable for the cost of meals consumed by a Member in the course of a normal working day, that is, where the Member is not travelling away from home overnight on work related activities… 225. The fact that a Member might incur the cost of the meals, that he or she would not normally incur, as a result of working extended hours, does not alter the private or domestic nature of the outgoings. 226. In Case Y8 91 ATC 166; AAT Case 6,587 (1991) 22 ATR 3037, a police officer claimed a deduction for the cost of meals while performing special duties away from his normal place of residence, but not involving an overnight stay away from his residence. It was held that the cost of these meals was private in nature and no deduction was allowable under subsection 51(1) of the ITAA 1936. 227. Example: Due to a late night sitting of Parliament, a Member, who is not travelling away from home overnight, decides to purchase her evening meal in the Parliamentary Dining Room. A deduction is not allowable for the cost of the meal. The expense is private in nature. Again the same reasoning can be applied broadly to all employees Application to your circumstances As described in the facts, your employees travel long distances to perform their duties, but do not stay away from their homes overnight. On presentation of receipts you reimburse the costs of food and drink consumed by the employees. As discussed in Cooper's case , the consumption of food and drink is ordinarily a private matter and the essential character of expenditure on food and drink will ordinarily be private. Your employees' income-producing activities do not include the taking of food. Although your employees' are working long days in the course of their employment, as discussed at paragraph 95 of TR 95/18, paragraphs 222 to 227 of TR 1999/10, and in accordance with the decision of the AAT in Case Y8 , even though the employees' may be having breakfast, lunch and dinner away from home, the occasion of the expenses is insufficient to change the character of the expense from private expenses to expenses incurred in gaining or producing the employees' assessable incomes. As such, the employees would not be allowed a deduction for the expenses. As the food and drink expenses would not be deductible to the employees, the 'otherwise deductible' rule does not apply, and the taxable value of the expense payment fringe benefits cannot be reduced to nil. | Detailed Reasoning - Issue 2 - Question 1: Under the Income Tax Assessment Act 1997 , will you be entitled to a deduction for the amount of the reimbursement made to your employees? | Summary: You are entitled to a deduction for the cost of providing the reimbursements, being expense payment fringe benefits, to your employees. | Detailed Reasoning - Detailed reasoning: As discussed above, section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they: Are incurred in gaining or producing your assessable income, or Are necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income. Paragraph 41 of TR 97/17 clarifies that expenditure on the provision of food or drink to an employee that does not amount to meal entertainment is deductible to the employer under section 8-1 of the ITAA, whether or not it is subject to FBT. As discussed in Issue 1 - Question 1 above, the reimbursements made by you for the cost of food and drink consumed by the employees' give rise to expense payment fringe benefits. As such, you are entitled to a deduction under section 8-1 of the ITAA for the cost of providing the expense payment fringe benefits to the employees.

Under the Income Tax Assessment Act 1997 (ITAA 1997), will you be entitled to a deduction for the amount of the reimbursement made to your employees? | This ruling applies for the following period: Income tax year ending 30 June 2017