89. However, the definition of 'non-deductible entertainment expenditure', in subsection 136(1), proceeds on the assumption that section 32-20 of the ITAA 1997 had not been enlivened. Consequently, section 32-20 of the ITAA 1997 has no further application.

39. As indicated in paragraph 36 of this Ruling, section 32-30 of the ITAA 1997 identifies that a facility includes a drink vending machine.

However, with WHO’s support and training, many health care providers are becoming advocates for FGM abandonment within the clinical setting and with their families and communities.

62. In general terms, these provisions provide that the value of a benefit will be included in the calculation of the aggregate non-exempt amount unless:

Type 3: Also known as infibulation, this is the narrowing of the vaginal opening through the creation of a covering seal. The seal is formed by cutting and repositioning the labia minora, or labia majora, sometimes through stitching, with or without removal of the clitoral prepuce/clitoral hood and glans.

12. As part of its business, EFM offers its fitness equipment and services (each being a Client Facility) to schools, hospitals and corporate entities in their capacity as employers.

Other References: ATO ID 2009/45 ATO ID 2009/141 Macmillan Publishers Australia, The Macquarie Dictionary online www.macquariedictionary.com.au LexisNexis Encyclopaedic Australian Legal Dictionary

97. Where this requirement is met, the provision of the Client Facility will not be a tax exempt body entertainment benefit, but rather is a residual benefit as explained in paragraph 72 of this Ruling. Should that be the case, the other requirements of subsection 47(2) must also be considered.

90. It is also considered that sections 32-35, 32-45 and 32-50 of the ITAA 1997 would not apply in relation to this Scheme meaning that only sections 32-30 and 32-40 of the ITAA 1997 could be applicable.

8. Where the employer is entitled to the exemption under section 57A and the benefit provided is a tax exempt body entertainment benefit under section 38, the expenditure comprising of the payment of the Management Fee is wholly or partly attributable to entertainment facility leasing expenses, and is excluded from the aggregate non-exempt amount under subsections 5B(1E) to (1L).

1. This Ruling sets out the fringe benefit tax consequences for employers who engage the services of EFM Corporate Pty Ltd (EFM) to provide health and fitness equipment to their employees.

116. The expression 'in respect of' is not defined in the ITAA 1997 but in relation to the employment of an employee, that expression is defined in subsection 136(1), as:

57. Therefore, where the employer is one of the entity types listed in paragraph 54 of this Ruling, the benefit will be an exempt benefit under section 57A.

55. Section 57A states that a benefit provided in respect of employment of an employee by an employer that is a registered public benevolent institution, a registered health promotion charity, a public or not-for-profit hospital, or a public ambulance service, is an exempt benefit.

113. As such, the exception provided by table item 3.1 of section 32-40 of the ITAA 1997, does not apply to make the entertainment expenses deductible and as none of the relevant exceptions applies in respect of the employer's employees' membership fees to the Client Facilities, it can be concluded that non-deductible entertainment expenditure is incurred.

Type 1: This is the partial or total removal of the clitoral glans (the external and visible part of the clitoris, which is a sensitive part of the female genitals), and/or the prepuce/clitoral hood (the fold of skin surrounding the clitoral glans).

WHO supports a holistic health sector response to FGM prevention and care, by developing guidance and resources for health workers to prevent FGM and manage its complications and by supporting countries to adapt and implement these resources to local contexts. WHO also generates evidence to improve the understanding of FGM and what works to end this harmful practice.

35. The term 'recreational facility' is defined in subsection 136(1) to mean a facility for recreation (but does not include a facility for accommodation or a facility for drinking or dining).

73. Section 45 provides that a benefit will be a residual benefit if it is not a benefit by virtue of the provision of Subdivision A of Divisions 2 to 11 (inclusive). For the purpose of this Ruling, the relevant Division is Division 10 which applies to tax-exempt body entertainment benefits. However, if the benefit is a tax-exempt body entertainment benefit, it will not be a residual benefit.

139. The provision of entertainment leasing expenses may reduce the amount of rebate available to a rebatable employer under section 65J. The provision of such benefits will form part of the employer's aggregate non-rebatable amount in the subsection 65J(2A) rebate calculation where the grossed-up taxable value of such benefits exceeds $5,000. Any excess amount is included in the capping thresholds for the purposes of determining the employer's aggregate non-rebatable amount under subsection 65J(2A) for an employer subject to the provisions of section 65J.

127. As discussed in paragraph 68 of this Ruling, the other exception that may apply is expenditure wholly or partly attributable to entertainment facility leasing expenses.

70. If either of these exceptions apply to the benefit arising from the payment of the Management Fee for the employee's access to the Health and Fitness Club, or use of the equipment or participation in the Health and Fitness Program, the benefit will not be included in the calculation of the aggregate non-exempt nor non-rebatable amount.

The practice of FGM is recognized internationally as a violation of the human rights of girls and women. It reflects deep-rooted inequality between the sexes and constitutes an extreme form of discrimination against girls and women. It is nearly always carried out by traditional practitioners on minors and is a violation of the rights of children. The practice also violates a person's rights to health, security and physical integrity; the right to be free from torture and cruel, inhuman or degrading treatment; and the right to life, in instances when the procedure results in death. In several settings, there is evidence suggesting greater involvement of health care providers in performing FGM due to the belief that the procedure is safer when medicalized. WHO strongly urges health care providers not to perform FGM and has developed a global strategy and specific materials to support health care providers against medicalization.

133. The employer has incurred expenses in return for the use of the gym equipment within Client Facility within the wider premises of the employer which accords with the dictionary definition of 'hire'.

Is that expenditure wholly or partly in respect of provision of entertainment to an employee or an associate of the employee?

58. Although the benefit is an exempt benefit, it may still be included in the calculation of the employer's aggregate non-exempt amount. In general terms, a public benevolent institution or health promotion charity will not be liable to pay fringe benefits tax unless a particular employee receives benefits with a value in excess of the amount specified in Step 2 of the method statement in subsection 5B(1E).

109. Nonetheless, as explained in paragraph 9 of TR 2000/4, activities that are considered to form part of 'business operations' do not necessarily mean that such activities are also 'undertaken in the ordinary course of carrying on a business'.

124. As the requirements explained in paragraph 73 of this Ruling are met, the bnefit provided is a tax-exempt body entertainment benefit where section 32-30 of the ITAA 1997 does not apply.

136. As explained in paragraphs 34 to 38 of this Ruling, participation in the Health and Fitness program consisting of supervision of Trainers and the use of the gym equipment in a designated area meets the definition of 'facility'.

71. As per paragraph 32 of this Ruling, there are four requirements that must be met for the exemption under subsection 47(2) to apply:

118. Therefore, payment by the employer in respect of the Management Fee is an outgoing that will have sufficient connection to the provision of entertainment to these employees provided that the relevant activities at the Client Facilities do constitute 'entertainment' for the purposes of the ITAA 1997.

81. As the employer is a not-for-profit entity, any expenditure incurred will not be incurred in producing assessable income. Therefore, the issue to be determined is whether the relevant Management Fee is non-deductible entertainment expenditure.

56. The benefit is provided because the employee works for the relevant employer. It is therefore provided in respect of the employment of the employee.

6. For corporate employers, being employees who are not entitled to the exemption under section 57A or the rebate under section 65J, the provision of health and fitness services under an arrangement with EFM will be a residual benefit and an exempt benefit under subsection 47(2).

52. Taxation Ruling TR 2000/4 Fringe benefits tax: meaning of 'business premises' provides the following explanation of what needs to be considered in relation to whether premises are business premises:

The reasons why FGM is performed vary from one region to another as well as over time and include a mix of sociocultural factors within families and communities.

68. The exemptions that are available to all employers, such as the exemption under section 47(2), are not included in the employer's aggregate non-rebatable amount.

134. Under the definition of 'entertainment facility leasing expenses', the hire or lease must be of corporate box, boat, plane or other premises or facilities.

3. All legislative references in this Ruling are to the Fringe Benefits Tax Assessment Act 1986 (FBTAA), unless otherwise indicated.

50. Therefore, the residual benefit is provided in respect of the current employee's employment and this condition is met.

84. Therefore, a fundamental requirement that must be satisfied for the expenditure to be a tax-exempt body entertainment benefit is for the expenditure to come within section 8-1 of the ITAA 1997.

FGM has no health benefits, and it harms girls and women in many ways. It involves removing and damaging healthy and normal female genital tissue, and it interferes with the natural functions of girls' and women's bodies. Although all forms of FGM are associated with increased risk of health complications, the risk is greater with more severe forms of FGM.

67. The benefits that are disregarded under subsection 65J(2H) include benefits whose taxable value is wholly or partly attributable to entertainment facility leasing expenses.

108. The Client Facilities are 'business premises' of the employer and they are used for 'business operations' of the employer, as indicated in paragraph 13 of this Ruling.

107. The phrase 'in the ordinary course of a business' is not defined in either the FBTAA or the ITAA 1997 and so must be interpreted according to its ordinary meaning and its legislative context.

4. This Ruling applies to you if you are an employer who engages EFM for the supply of health and fitness equipment to be used by your employees.

30. For corporate employers, being employers who are not eligible for the section 57A exemption, employers who are not eligible for the section 65J rebate or non-profit employers, the benefit will be a fringe benefit where it meets the definition of 'fringe benefit' as defined in subsection 136(1).

43. It is considered that the activities available at the Client Facility meet the wider definition of 'recreation' and therefore meets the definition of a 'recreational facility' that is available for use by current employees.

32. For the purposes of this Ruling, the relevant exemption is the exemption provided under subsection 47(2) for a residual benefit that consists of the use of a recreational facility located on business premises of the employer.

54. As all the requirements of subsection 47(2) are met, the residual benefit provided by corporate employers is an exempt benefit.

65. In working out an employer's aggregate non-rebatable amount, the employee's type 1 and type 2 individual base non-rebatable amounts must be worked out under subsections 65J(2E) and (2F) respectively.

102. The intention of table item 3.1 of section 32-40 of the ITAA 1997 is to allow an entity that carries on a business of providing entertainment to claim a deduction for losses or outgoings incurred in providing that entertainment. Therefore, an outgoing only falls within table item 3.1 where it is in respect of providing entertainment for payment in the ordinary course of business carried on by the entity making the outgoing.

22. Employers often look to recoup the cost of the Management Fee by deducting it from its employees' salaries and wages. For the purposes of this Ruling, such deductions occur under an effective salary sacrifice arrangement as described in Taxation Ruling TR 2001/10 lncome tax: fringe benefits tax and superannuation guarantee: salary sacrifice arrangements.

129. As provided for in ATO Interpretive Decision ATO ID 2009/45 Fringe Benefits Tax: Entertainment Facility Leasing Expenses: private function room and hotel room expenses, the word 'hiring' is not defined in the FBTAA so it has its natural meaning, taken in the context in which it appears in the legislation.

25. Each employer procures EFM to provide instruction and supervision on the correct use of the Client Facility to the employer's employees and the provision of access to the Client Facility. Such benefits apply only to that employer's employees and not to former employees, future employees or any relative of an employee.

46. Under each Service Agreement, the employer is liable to pay EFM a Management Fee based on the number of employees participating in the Health and Fitness Program. Also under each Service Agreement, the employee does not incur a liability for use of the Client Facility or participation in the Health and Fitness Program.

26. Some employers are an exempt entity within the meaning of section 50-5 of the Income Tax Assessment Act 1997 (ITAA 1997).

138. Benefits provided under the salary packaging arrangement that constitute the provision of entertainment leasing expenses are an exempt benefit where the grossed-up taxable value does not exceed $5,000. Any excess amount is included for the purpose of the capping thresholds in determining the employer's aggregate non-exempt amount under subsection 5B(1E) for an employer subject to the provisions of section 57A .

29. The payment by the employer of the Management Fee, including under a valid salary sacrifice arrangement, in return for the employees' use of the gym equipment and participation in the Health and Fitness Program will give rise to a 'benefit' as defined in subsection 136(1).

63. Similarly, section 65J provides that certain employers (rebatable employers) are entitled to a rebate equal to a percentage of the gross FBT payable, subject to a capping threshold.

66. In calculating the employee's type 1 and type 2 individual base non-rebatable amounts, certain benefits are disregarded under subsection 65J(2H).

24. EFM does not have any relationship with the employers other than the arm's length commercial arrangement under the Service Agreement.

103. It is accepted that the employer may well incur various expenditures in operating the Client Facilities and where such operating expenditures would also be entertainment expenditures under section 32-5 of the ITAA 1997 then the exception afforded by table item 3.1 of section 32-40 of the ITAA 1997 may be satisfied. This would be on the basis that such operating expenses would be part of the ordinary course of business of the employer in providing entertainment for payment.

86. Therefore, a tax-exempt body entertainment benefit will not arise in relation to expenditure that is a loss or outgoing of capital, or of a capital nature.

100. In both of these instances, any use of the gym by employees would be incidental to its use by patients of the hospital or students of the school. Therefore, table item 1.5 of section 32-30 of the ITAA 1997 does not apply in this case to make the entertainment expenses deductible and section 32-40 of the ITAA 1997 will need to be considered where section 32-30 of the ITAA 1997 does not apply.

77. Entertainment for the purposes of the FBTAA is defined as 'entertainment by way of food, drink or recreation' and recreation in turn is defined to include 'amusement, sport or similar leisure-time pursuits.' It is agreed that for FBTAA purposes the provision of the use of a gym facility is the provision of entertainment.

Female genital mutilation (FGM) comprises all procedures that involve partial or total removal of the external female genitalia, or other injury to the female genital organs for non-medical reasons. The practice has no health benefits for girls and women and cause severe bleeding and problems urinating, and later cysts, infections, as well as complications in childbirth and increased risk of newborn deaths.

42. As the definition of the term 'recreation' in subsection 136(1) is 'inclusive' the ordinary meaning of the term is also relevant. In that respect the Macquarie Dictionary states in relation to the term 'recreation'[1]:

45. Section 45 provides that a benefit will be a residual benefit if it is not a benefit by virtue of a provision of Subdivision A of Divisions 2 to 11 (inclusive).

Type 2: This is the partial or total removal of the clitoral glans and the labia minora (the inner folds of the vulva), with or without removal of the labia majora (the outer folds of skin of the vulva).

79. In order to satisfy the requirements of section 38, it is necessary to consider whether such expenditure is 'non-deductible exempt entertainment expenditure'. If the expenditure is considered to be non-deductible entertainment expenditure, it will be a tax-exempt body entertainment benefit and the exemption in subsection 47(2) will not apply to the benefit.

9. Where the employer is eligible for the FBT rebate under section 65J and the benefit provided is a tax exempt body entertainment benefit under section 38, the expenditure comprising of the payment of the Management Fee is wholly or partly attributable to entertainment facility leasing expenses and is excluded from the aggregate non-rebatable amount under subsections 65J(2E) and (2F).

78. Expenditure incurred in payment of the Management Fee for the employees' use of a gym, including under an effective salary sacrifice arrangement, is expenditure in respect of the provision of entertainment to an employee.

137. As the Management Fee is paid to cover the employee's use of the gym equipment, the expenditure is wholly or partly attributable to entertainment facility leasing expenses.

53. The Applicant has advised that under the Scheme, each Client Facility is located on the premises from which that employer operates its business and that such premises are business premises within the meaning of subsection 136(1) and, as a result, this requirement is met.

123. In this Scheme, the relevant expenditure is generally paid pursuant to salary sacrifice arrangements between the employer and the employer's employees. The expenditure is in respect of the employment of the employee and this condition is met.

40. Under the Service Agreement, the employee participates in the Health and Fitness Program at a gym which is set up in a designated area and has access to use gym equipment which is supervised by a trainer. Similar to a drink vending machine being an appliance that is designed for a specific purpose that makes obtaining a drink easier and therefore a 'facility', the gym is something designed for a specific purpose that makes enabling a person to improve fitness easier and is therefore also a 'facility'.

64. The calculation of the employer's FBT rebate under subsection 65J(2A) involves calculating the employer's aggregate non-rebatable amount following the method statement in subsection 65J(2B).

114. As per paragraph 81 of this Ruling, the non-deductible entertainment expenditure is not incurred in producing assessable income.

44. On that basis, this requirement is met as there has been the provision or use of a recreational facility that is supplied to a current employee.

111. While it is accepted that the Health and Fitness Club is a factor in recruiting, retaining and otherwise rewarding the employer's employees, paragraph 41 of TR 2000/4 cannot be discounted where it states (emphasis added):

Since then, WHO has developed a global strategy against FGM medicalization with partner organizations and continues to support countries in its implementation.

96. This would include circumstances where a gym is only established on the employer's premises for the employer's employees to use. In such instances, table item 1.5 of section 32-30 of the ITAA 1997 would apply to make the entertainment expenses deductible as there would be little chance of non-employees being able to use the facility.

60. The exemptions that are available to all employers, such as the exemption under section 47(2), are not included in the employer's aggregate non-exempt amount.

10. The following description of the scheme is based on information provided by the applicant. If the scheme is not carried out as described, this Ruling cannot be relied upon.

76. Therefore, for a tax-exempt body entertainment benefit to arise from the use of the gym facility by an employee, the employer must incur expenditure. Further, the expenditure must be in respect of the provision of entertainment with the benefit arising at the time the expenditure is incurred.

18. In addition to the definitions in paragraph 17 of the Ruling, the following standard definition applies to facilities that operate some unsupervised hours:

106. What is also under examination in relation to this Scheme is whether the employer's payments of the Management Fee, recouped via an effective salary sacrifice arrangement, are also part of the ordinary course of business of the employer in providing entertainment.

7. For other employers, so long as the provision of health and fitness services under an arrangement with EFM does not meet the definition of a tax exempt body entertainment benefit under section 38, it will be a residual benefit and an exempt benefit under subsection 47(2).

135. The words premises or facilities are not defined in the FBTAA, so they have their natural meaning, taken in the context that they appear in the legislation.

88. Section 32-20 of the ITAA 1997 is the main exception to the operation of section 32-5 of the ITAA 1997. Section 32-20 of the ITAA 1997 states that:

93. Table item 1.5 of section 32-30 of the ITAA 1997 concerns an employer-occupied facility for recreation that is mainly operated for the use of the employer's employees (and the facility is not used for accommodation or for dining or drinking, unless from a vending machine).

In 2008, the World Health Assembly passed resolution WHA61.16 on the elimination of FGM, emphasizing the need for concerted action in all sectors: health, education, finance, justice and women's affairs.

122. The meaning of the phrase 'in respect of the employment of the employee' was considered in the context of fringe benefits in the Federal Court case of J & G Knowles v Commissioner of Taxation [2000] FCA 196. It was held in this case that the words 'in respect of' required a sufficient or material, rather than a causal, connection or relationship between the two activities.

98. As the provision of the Client Facility is in respect of the employee's employment as explained in paragraphs 48 to 50 of this Ruling, and the recreational facility is also located on the business premises, as explained in paragraphs 51 to 53 of this Ruling, the exemption under subsection 47(2) will apply.

If this Ruling applies to you, and you correctly rely on it, we will apply the law to you in the way set out in this Ruling. That is, you will not pay any more tax or penalties or interest in respect of the matters covered by this Ruling.

83. Section 32-5 of the ITAA 1997 prevents an income tax deduction being claimed for a loss or outgoing incurred in providing entertainment under section 8-1 of the ITAA 1997 unless the expenditure comes within one of the exceptions contained in sections 32-20 to 32-50 of the ITAA 1997.

Type 4: This includes all other harmful procedures to the female genitalia for non-medical purposes, e.g., pricking, piercing, incising, scraping and cauterizing the genital area.

104. In this case though, the employer does not provide entertainment for payment. Under the Service Agreement, the employer does not receive any payment for providing entertainment.

Legislative References: FBTAA 1986 Div 2 Subdiv A FBTAA 1986 Div 3 Subdiv A FBTAA 1986 Div 4 Subdiv A FBTAA 1986 Div 5 Subdiv A FBTAA 1986 Div 6 Subdiv A FBTAA 1986 Div 7 Subdiv A FBTAA 1986 Div 8 Subdiv A FBTAA 1986 Div 9 Subdiv A FBTAA 1986 Div 10 Subdiv A FBTAA 1986 Div 11 Subdiv A FBTAA 1986 5B(1E) FBTAA 1986 5B(1F) FBTAA 1986 5B(1G) FBTAA 1986 5B(1H) FBTAA 1986 5B(1J) FBTAA 1986 5B(1K) FBTAA 1986 5B(1L) FBTAA 1986 38 FBTAA 1986 45 FBTAA 1986 47(2) FBTAA 1986 57A FBTAA 1986 65J FBTAA 1986 65J(2A) FBTAA 1986 65J(2B) FBTAA 1986 65J(2E) FBTAA 1986 65J(2F) FBTAA 1986 65J(2H) FBTAA 1986 136(1) ITAA 1997 8-1 ITAA 1997 32-5 ITAA 1997 32-20 ITAA 1997 32-30 ITAA 1997 32-35 ITAA 1997 32-40 ITAA 1997 32-45 ITAA 1997 32-50 ITAA 1997 50-5 TAA 1953

31. The definition of fringe benefit in subsection 136(1) excludes at paragraph (g) a benefit that is an exempt benefit in relation to the year of tax.

FGM is mostly carried out on young girls between infancy and adolescence, and occasionally on adult women. According to available data from 30 countries where FGM is practiced in the western, eastern, and north-eastern regions of Africa, and some countries in the Middle East and Asia, more than 200 million girls and women alive today have been subjected to the practice with more than 3 million girls estimated to be at risk of FGM annually. FGM is therefore of global concern.

37. ATO Interpretive Decision ATO lD 2009/141 Fringe Benefits Tax: Entertainment facility leasing expenses: hire of a marquee provides the following information in relation to the definition of 'facility':

125. As the benefit provided is a tax-exempt body entertainment benefit, it is not a residual benefit as explained in paragraph 71 of this Ruling.

112. Under the Service Agreement, the employer does not receive any payment for providing entertainment. All payments are received by EFM. Therefore, the dealings are not undertaken for the purpose of profit making by the employer.

33. Subsection 47(2) provides an exemption in respect of the provision of various types of residual benefits. Subsection 47(2) states (as relevant here):

126. The exemption under subsection 47(2) therefore does not apply and it is therefore not necessary to consider the other requirements as listed in paragraph 71 of this Ruling.

34. Therefore, the provision of a benefit is exempt under subsection 47(2) where all of the following conditions are met:

You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).

117. Staff of employers who participate in the program have unlimited access to the health and fitness equipment during the relevant hours of operation while they remain members.

87. In the case of expenditure on the Management Fee, it would be deductible as a business expense. It is therefore necessary to consider the exceptions contained in section 32-50 of the ITAA 1997.

47. The benefit provided by corporate employers, therefore, does not fall within any of the provisions of Subdivision A of Division 2 to 11 and as such is a residual benefit per section 45.