A recent post by a TaxEd member to the Q&A service asked the question as to whether an “employee of the year award” consisting of the employer paying for five nights accommodation at a far north tropical Queensland resort would be classed as an entertainment facility leasing expense (‘EFLE’).
Well, similar to ‘meal entertainment’ fringe benefits, an employer is able to choose to value EFLE benefits for the FBT year using a 50-50 taxable value method. Therefore, where EFLE benefits have been provided exclusively to employees and their associates, an employer is in the position to halve their FBT liability on such benefits (due to the 50 – 50 taxable value).
An even better FBT outcome arises where the employer is exempt under section 57A of the FBT law because non-salary packaged EFLE benefits are excluded from the employer’s $17,000 or $30,000 capping threshold.
The outcome for section 57A exempt employers arises because of the interaction between subsection 57A(3), subsection 5B(1L) and subsection 5E(3) of the law. Step 1 of the method statement in subsection 5B(1L) specifically disregards these benefits for the purposes of calculating the employee’s subsection 5B(1L) amount where they have not been provided under a salary packaging arrangement. The effect is that these benefits remain exempt from fringe benefits tax and do not form part of the fringe benefits tax capping threshold in respect of an employee of such an employer.
The amount (for all employers) are also not Reportable Fringe Benefits given section 135Q of the FBT law (non-salary packaged ELFE is not an excluded benefit for reporting purposes for all employers).
Subsection 136(1) of the FBTAA defines the term ‘entertainment facility leasing expenses’ as 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.
The use of a hotel room, or similar accommodation, whilst on holiday is entertainment by way of recreation under section 32-10(1)(a) of the Income Tax Assessment Act 1997 (‘ITAA 1997’). Alternatively, a hotel room, or similar accommodation, occupied whilst on holidays is accommodation that can fall within ‘entertainment’ under section 32-10(1)(b) of the ITAA 1997, being accommodation to do with providing entertainment by way of recreation.
The expense incurred by the employer on hiring/leasing the resort room for occupation by the employee and their family is an ‘entertainment facility leasing expense’ as defined in subsection 136(1) of the FBT Act. Specifically falling under paragraph (c) of the definition.
As the employer will have paid for this expense, the taxable value is wholly or partly attributable to entertainment facility leasing expenses. Where the benefit is not provided under a salary packaging arrangement the following outcomes arise:
A detailed analysis of this issue can be found in ATO Interpretative Decision ID 2009/45.
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This article provides a general summary of the subject covered as at the date it is published. It cannot be relied upon in relation to any specific instance. TaxEd Pty Ltd and any person connected with its production disclaim any liability in connection with any use. It is not intended to be, nor should it be relied upon as, a substitute for professional advice.