An unforeseen fringe benefit (and the tax consequences)
John is an executive sales manager for Fine Foods Pty Ltd, which owns a number of food brands including pre-packaged meals, canned goods and some beverages.
During the year, John attended the following events on behalf of, and provided by, Fine Foods.
1. A golf day including a round of golf (and equipment hire) at a prestigious golf club for the food manufacturing industry at a cost of $200 per person.
2. A “food industry” conference hosted in Sri Lanka over the course of four days. This included three days of workshops and lectures and on the fourth day a visit to a tea plantation including a demonstration of the harvesting and packing procedures conducted at the plantation. Later a half day tour of Colombo and sightseeing arranged by the seminar hosts.
3. A food grower’s gala event that was a sponsorship arrangement between Fine Foods and the Food Growers Association under which Fine Foods paid $5,000 towards the event. In return, it had its banner and logo displayed at the event and its logo printed on all event tickets. Additionally, four tickets were given to Fine Foods to have representatives attend ($40 each).
Fine Foods does not believe that there are any FBT implications arising from John participating in these events as it believes they are all business related.
The golf day
The golf day would in fact be classified as recreational entertainment provided by way of an expense payment fringe benefit. This is because the round of golf was for John’s personal recreation or enjoyment. This would be the case even though it was an industry event.
Had John purchased a ticket to the golf day himself, it would not have been tax deductible to him in his personal income tax return and therefore the “otherwise deductible” rule cannot apply (ask us if you need clarification on this).
As the ticket for the golf day was under $300, Fine Foods would be able to apply the minor benefits exemption if it can substantiate that benefits of a similar nature are not provided on a regular or frequent basis.
The “food industry” seminar
Based on the facts provided, the initial three days of the seminar do not appear to attract FBT; in addition, the tour of the tea plantation also appears to be specifically relevant to the purpose of the seminar and advancing knowledge in foods and food preparation.
However, the half day tour of Colombo is of a recreational nature which was personally enjoyed by John with no connection to his employment, and would attract FBT.
If Fine Foods could ascertain the cost of the tour component from the seminar registration, it should include that component as an expense payment fringe benefit. Alternatively, it would have to source a market value for the tour. Under the “arranger” provisions, provision of a benefit to an employee via a third party under an arrangement is still deemed to classify as being in respect of employment and would be the liability of the employer.
Note: It is important that where businesses have paid for employees to attend seminars and conferences that agendas for the seminar are reviewed for any recreational components.
The food grower’s gala event
Having also met the definition of an expense payment fringe benefit, it would appear that the value of the ticket to the gala event would be taxable for FBT purposes. However, the Tax Office has accepted that in cases where there is a sponsorship arrangement in place, attendance by executives to assess the effectiveness of their sponsorship investment will not attract FBT.
This would need to be assessed on a case-by-case basis, and factors to consider include:
- the value of the sponsorship commitment required
- the value of the tickets or other benefits provided in return, and
- the number and role of the employees attending.
In the circumstances outlined above, it is unlikely that the gala event tickets would be deemed as fringe benefits.
As Fine Foods has a sponsorship arrangement in place with the Food Growers Association and the value of that sponsorship outweighs the value of tickets provided, it appears to be a reasonable value exchange.
As John is a executive of Fine Foods it seems legitimate that he is invited to the event with only three other colleagues to network with any current or potential suppliers and to assess the effectiveness of their sponsorship of the event, especially if the other colleagues are also senior or executive personnel.