FBT and in particular Meal Entertainment FBT are not nearly as fun as the lunch or dinner that may give rise to them.

In many ways for a small business (SBE) you do not seem to gain from paying for these from your business, this becomes more certain if you earn less than the top tax threshold of $180K p.a.

FBT seems to be the least understood and complied with tax for SBE owners with meal entertainment is the most problematic.

To highlight this consider these parameters the employer needs to follow for expenditure on meal entertainment:

  1. An employer paying a fringe benefit for an employee:
  • The expense is tax deductible
  • You can claim the GST
  • You must pay FBT
  1. But when an employer is paying for their client/s:
  • It is not deductible
  • You therefore do not claim any GST
  • There is no FBT to pay

With meals many find this calculation to onerous and opt for a straight 50/50 split method, the issue here is that ALL meal expenses even those where FBT is not applicable are then included.

The following may assist you understand FBT better
What is FBT (fringe benefits tax):

  • FBT is paid by employers on certain benefits they provide to their employees or their employees’ family or other associates. FBT applies even if the benefit is provided by a third party under an arrangement with the employer.
  • FBT is separate to income tax and is calculated on the taxable value of the fringe benefit.
  • The employer must self-assess their FBT liability for the FBT year (that is, 1 April to 31 March) and lodge an FBT return.
  • Employers can generally claim an income tax deduction for the cost of providing fringe benefits and for the FBT they pay. Employers can also generally claim GST credits for items provided as fringe benefits.

https://www.ato.gov.au/General/Fringe-benefits-tax-(FBT)/

Providing entertainment means:

  • providing entertainment by way of food, drink or recreation
  • providing accommodation or travel in connection with such entertainment.

Fringe benefits tax and entertainment for small business
https://www.ato.gov.au/General/Fringe-benefits-tax-(FBT)/In-detail/FBT-and-entertainment-for-small-business/

Are you providing the food or drink for employees:

  • to complete the working day in comfort, or
  • to enjoy themselves?

1. Providing refreshments to enable the employee to complete the working day in comfort is not generally entertainment.

Food or drink provided during work time, during overtime or while an employee is travelling for work is less likely to be entertainment. i.e. likely to be provided for a work-related purpose.

Food or drink provided on your business premises or at the employee’s usual workplace is less likely to be entertainment.

2. Providing food or drink in a social situation where the purpose of the function is for employees to enjoy themselves is likely to be entertainment.

Food or drink provided off your business premises, such as at a function room, hotel, restaurant or consumed with other forms of entertainment, is more likely to be entertainment.

The more elaborate a meal, the more likely it becomes that entertainment arises from eating the meal.
https://www.ato.gov.au/General/Fringe-benefits-tax-(fbt)/In-detail/Non-profit-organisations/FBT-and-entertainment-for-non-profit-organisations/?page=5#Is_the_food_and_drink_entertainment_

Review the Meal entertainment table on this page.

Is the benefit exempt from FBT?
The following need to be read to understand how and why common expenses are exempted:

  1. Property benefit exemption
  2. Taxi travel
  3. Minor benefits exemption

https://www.ato.gov.au/General/Fringe-benefits-tax-(fbt)/In-detail/Non-profit-organisations/FBT-and-entertainment-for-non-profit-organisations/?page=6#Is_the_benefit_exempt_from_FBT_

Generally, entertainment expenses are non-deductible for income tax purposes. However, some specific entertainment expenses are deductible, for example:

  • the cost of meals provided to employees in a staff cafeteria (not including social functions)
  • the cost of meals at certain business seminars
  • meals on business travel overnight.

https://www.ato.gov.au/General/Fringe-benefits-tax-(fbt)/In-detail/Non-profit-organisations/FBT-and-entertainment-for-non-profit-organisations/?page=2

Quick entertainment checklist – are you providing entertainment for your employees?
https://www.ato.gov.au/General/Fringe-benefits-tax-(fbt)/In-detail/Non-profit-organisations/FBT-and-entertainment-for-non-profit-organisations/?page=3#Quick_entertainment_checklist___are_you_providing_entertainment_for_your_employees_

How to calculate the taxable value of entertainment

  • Entertainment FBT will only apply to entertainment you provide to your employees and/or their associates.
  • Entertainment you provide to your clients will not be subject to FBT under this valuation method.

For Meal Entertainment only you can choose which method results in the lowest FBT liability, options include

  • The actual method

OR

  • 50:50 split method
  • 12-week method

Both of these methods are based on your total meal entertainment expenditure.

This includes expenditure that may otherwise be exempt from FBT or not normally subject to FBT, for example providing food and drink to employees on your business premises and/or providing meals for clients.

You must decide to classify fringe benefits as meal entertainment no later than the day your FBT return is due to be lodged with us or if you do not have to lodge, by May 21.
https://www.ato.gov.au/General/Fringe-benefits-tax-(fbt)/In-detail/Non-profit-organisations/FBT-and-entertainment-for-non-profit-organisations/?page=7#How_to_calculate_the_taxable_value_of_entertainment

Common entertainment scenarios
https://www.ato.gov.au/General/Fringe-benefits-tax-(fbt)/In-detail/Non-profit-organisations/FBT-and-entertainment-for-non-profit-organisations/?page=9#Common_entertainment_scenarios

As always you can call us to discuss.

General Advice warning: the information in this article is general in nature, it is not advice specific to your needs. If you want to act upon the information in this article then you should seek advice from a qualified professional. VJC WM accepts no liability to any party for acting from this information unless they have sought advice in a formal engagement with VJC WM for this purpose.