Entertainment provided to an employee (or associate) by an employer or a related party is subject to FBT. Entertainment of non-employee’s (eg. clients) is not subject to FBT, but is most likely non-tax deductible. There is no category called “entertainment”, rather you treat the entertainment as an expense payment, property or residual fringe benefit.
In terms of valuation of the benefit, some entertainment may be classified as ‘meal entertainment’ and there is a choice of valuation rules (i.e. 50-50 split, 12 week register). For other forms of entertainment it is the actual cost of the entertainment.
The definition of entertainment for the purposes of FBT is taken from the Income Tax Assessment Act and is basically expenditure in respect of entertainment by way of food, drink or recreation. It includes accommodation or travel in connection with entertainment (eg. airline ticket for a holiday).
How to determine what is entertainment
For a fringe benefit to arise there must be entertainment, and this must be provided in the form of food, drink or recreation (including associated travel and accommodation). Examples include business lunches, cocktail parties, staff social functions and sporting or theatre tickets.
The following tips may assist you in determining what is entertainment:
it is only entertainment of employees (and associates, eg. spouse) which is subject to FBT. Entertainment of clients or others is not subject to FBT;
it is generally irrelevant whether the entertainment is provided free, or whether it is a requirement of employment that you attend the social function;
no FBT is payable in respect of providing food and drink in an “in-housing dining facility”, food and drink incidental to an “eligible seminar” or an “exempt training seminar”;
morning and afternoon tea and light meals on a working day is not entertainment. If alcohol is provided, the cost of the meal and alcohol is subject to FBT according to the ATO (Tax Ruling IT 2675);
where an employee is on a business travel, and the employer reimburses his meal cost (including alcohol), no part of the meal cost is subject to FBT. Where, however, the employee on business travel also pays for an associate’s meal, the ATO now regards only half of the meal cost as being subject to FBT (i.e. entertainment). If the employee takes a client out, the employee’s meal cost is not subject to FBT and the client’s meal cost is not; and
normally a Christmas party or other entertainment is not subject to FBT if the entertainment is irregular or infrequent and the cost per employee or associate is less than $100 (i.e. minor benefit).
Exemptions
The provision of the following expenditure is not subject to FBT.
Food and drink provided in an “in-house dining facility”. An in-house dining facility is defined as a canteen, dining room or similar facility which is located on the employer’s premises, operated wholly or principally for providing food and drink on working days to employees, and is not open to the public. For example, lunch provided to teachers in a staff dining room is not subject to FBT. A boardroom or meeting room with kitchen facilities is not an in-house dining facility (IT 2675). Parties, receptions and other social functions remain subject to FBT.
“In-house recreational facilities”. Recreation facilities located on an employer’s premises and provided to employee’s are not subject to FBT. Examples include tennis courts, gymnasium and games room.
Food and drink incidental to attendance at an “eligible seminar”. To qualify as an eligible seminar, the seminar must:
– be a conference, convention, lecture, training session, or speech;
– have a continuous duration of four hours (excluding breaks).
business discussions in the normal course of business are not eligible, unless it is an exempt training seminar;
the sole or dominant purpose of the seminar must not be the promotion or advertising of the business; and
the sole or dominant purpose must not be the provision of entertainment.
In practice, a seminar which includes the provision of entertainment by way of food or drink which is incidental to a person’s attendance at a seminar is not subject to FBT. However, the cost of entertainment in the form of recreation (eg. trip to a tourist attraction) may be subject to FBT, particularly if it is an optional and separate charge.
Any component of an all-inclusive registration fee for an eligible seminar which is attributable to recreation may be subject to FBT on a proportional basis.
“Exempt training seminars” qualify as eligible training seminars where:
the seminar is organised to discuss general policy issues; and/or
to enable employees to discuss general policy issues relevant to the internal management of the employer’s business; and
the seminar is not held on premises of the employer. It must be held on premises of a person whose business includes the organising of seminars or making premises available for those purposes.
Where the above conditions are satisfied, the seminar will be an eligible seminar, and food and drink incidental to attendance at the seminar is not subject to FBT.
Taxable Value
The taxable value of the benefit is generally calculated as the expenditure incurred (including GST) which is attributable to the entertainment of the employee (or associate). Under the reportable fringe benefits rules, “meal entertainment” does not appear on an employee’s payment summary.
However, any entertainment in the form of “recreation” (eg. movie, theatre, football, golf tickets) does appear on the payment summary.
All entertainment that comes within the scope of ‘meal entertainment’ is NOT a reportable fringe benefit no matter how it is valued (i.e. as an expense payment, residual, property).
All entertainment attributed to non-employees is not subject to FBT. Where a minor benefit is provided (i.e. value less than $100 and irregularly provided), this may be exempt from FBT.
In summary, the taxable value of all entertainment (excluding meal entertainment) is usually the expenditure incurred (including GST) in providing the entertainment.
Entertainment is reported as an expense payment, property or residual fringe benefit, depending on the circumstances.
Meal Entertainment
An employer may elect to calculate the taxable value of a meal entertainment fringe benefit under either the 50/50 split method or 12-week register method:
50/50 split method. Under this method the taxable value is one-half of all expenses incurred in providing meal entertainment to all persons. Therefore, half meal entertainment costs are subject to FBT.
The 50/50 split also applies to hiring costs of corporate boxes and other hospitality arrangements. (The property exemption for food and drink does not apply if the 50/50 rule is used).
12 week register. The taxable value is determined by reference to a 12-week register. The register must be kept for a continuous 12-week period which is representative of the expenditure in the year. A new register may be kept every five years. The taxable value is the total meal entertainment expenditure multiplied by the “register percentage”. The percentage is calculated as:
Total value of meal entertainment fringe benefits provided over 12 weeks
Total value of meal entertainment provided over 12 weeks
For example, an employer’s meal entertainment over 12 weeks was $10,000. Of this, $3,000 was provided as a meal entertainment fringe benefit (i.e. meals etc. to employees or associates). The register percentage is 30%, which is applied to total meal entertainment in an FBT year.
How to determine whether food and drink are entertainment
To help in the determination of whether the provision of food and drink is meal entertainment, the following table from tax ruling TR 97/17A should assist. To obtain a copy of this ruling, go to www.ato.gov.au, click on ‘legal database’ and enter the ruling number into the ‘search’ function.
| Circumstances in which food and drink is provided | FBT |
| Consumed by employee’s on work premises– at a social function- in an in-house dining facility – non-party etc.
– in an in-house dining facility – at a party etc. – morning and afternoon teas and light lunches |
NNN
N |
| Consumed by associates (eg. family) on work premises– at a social function- in an in-house dining facility – non party, etc.
– in an in-house dining facility – at a party etc. – morning and afternoon teas and light lunches (ATO view) |
YYY
Y |
| Consumed by clients (i.e. a third party)– Any situation | N |
| Consumed off the work premises at a social function (eg. lunch)– by employees- by associates
– by clients |
YYN |
| Alcohol only– employee travelling, alcohol with meal- at end of seminar with finger ood | NN |
| Consumed by employees while travelling– employee travels and dines alone- employees travelling together and dine together
– travel with client and dine together – dines with employee who is not travelling – employee’s meal only – all meals paid by employer – travelling employee – non-travelling employee – dines with client who is not travelling – employee’s meal only – employee’s and clients meal provided – employee’s meal – client’s meal |
NNN
N N N N N N |
| Employees dining together– employee entertains himself and/or another employee | Y |
| Meal consumed whilst attending seminar– incidental to an eligible seminar- light breakfast at a seminar (non eligible seminar i.e. < 4 hours)
– light refreshments, including moderate amounts of alcohol provided at a non eligible seminar |
NNN |
| Consumed by employees at promotions– function held to promote employer’s business | Y |
| Meals provided under an arrangement– employer is aware and consents to employee being taken out to dinner with clients — employees
– clients |
YN |
| Use of corporate credit card– employees dine together and meal is paid for with credit card | Y |
| Accompanying spouses– with employee travelling on business and employer pays for all meals- employee
– spouse |
NY |
