Fringe Benefits Tax – Entertainment
Fringe Benefits Tax (FBT) legislation can be a tricky thing that often leaves employers unsure of when it does and doesn’t apply. In this article we are focusing on entertainment fringe benefits as they often apply where food and drink is provided to an employee. These costs are also commonly mistaken for deductible expenses (and GST claimed) which we discuss below.
The circumstances surrounding the provision of food and drink need to be examined to determine if it is considered entertainment:
Why is the food or drink being provided? If the food or drink provided is for refreshment purposes then it generally does not have the character of entertainment. However food or drink provided in a social situation, where the purpose is for the employees to enjoy themselves, will be treated as entertainment.
What food or drink is being provided? Morning and afternoon teas and light meals are generally not considered entertainment, however as a meal becomes more elaborate it becomes more likely that it is treated as entertainment.
When is the food or drink being provided? Food or drink provided during work time, during overtime or while the employee is travelling is less likely to be entertainment. This is because in the majority of cases food is provided for work related purpose rather than entertainment purpose. However if a staff social function is held during work time, this still has the character of entertainment.
Where is the food or drink being provided? Food or drink provided on the employer’s business premises or at the usual place of work of the employee is less likely to have the character of entertainment. Whereas food or drink provided in a function room, hotel, restaurant or cafe is more likely to be seen as entertainment.
As you can see it is not easy to provide blanket examples of when food and drink will be considered entertainment as many factors need to be considered. If you provide food and drink that is entertainment, then the following should be considered:
Exemptions: Food and drink consumed on business premises on a working day is always exempt from FBT regardless of whether entertainment was involved or where the food was prepared. However if in this situation food was also provided to associates of employees (e.g., a spouse) this is not exempt from FBT. In this case the expenditure would have to be apportioned between employees and associates. If the value of the benefit to the associate is less than $300, it may meet the criteria for a minor benefit exemption discussed below.
Minor benefit exemption: An employee benefit which has a value of less than $300 may be a minor benefit. The value, frequency and regularity of the provision, together with recording and valuation difficulties should be considered before concluding if a minor benefit exists. Staff gifts less than $300 for birthdays, rewards for performance, periods of serve, weddings and farewells would all be deemed minor benefits.
Keep records: This will help us to determine whether we can apply an exemption to your entertainment fringe benefits. Details to be recorded include the date you provided the entertainment, who is the recipient of the entertainment (employee, associate, client), the cost of the entertainment, the kind of entertainment provided and where the entertainment is provided.
Employers also need to consider the tax deductibility of providing food and drink to employees, associates and other persons. Where the provision of food and drink is considered to be entertainment it will not be deductible in the following situations:
- An exemption applies for food and drink provided to an employee or associate.
- Food and drink is provided to a client or other person who is not an employee or associate.
Therefore the entertainment will only be deductible where:
- The provision of food and drink is subject to FBT.
Where the entertainment is not deductible for income tax purposes you are also unable to claim any GST paid.