Meal entertainment (Division 9A of the Fringe Benefits Tax Assessments Act 1986)
Entertainment is probably the most difficult area of identifying and calculating taxable values as there are so many different types of benefits and ways to calculate the taxable value of these benefits.
- The provision of entertainment includes:
entertainment by way of food, drink or recreation, or accommodation or travel in connection with or to facilitate the provision of entertainment. - it also includes amusement, sport and similar leisure-time pursuits, as well as joy flights, sightseeing tours, harbour cruises, business lunches and drinks, cocktail parties and staff social functions.
Some examples of entertainment are business lunches and drinks, staff social functions, tickets to sporting events, and accommodation and travel when it is provided in connection with or to facilitate activities such as entertaining clients. Where these benefits are provided to you as an employee, the company may be subject to fringe benefit tax (FBT).
The two most common methods to calculate FBT payable are:
- The actual method
- The 50/50 split method.
The actual method applies by default if the 50/50 method is not elected. Where the actual method is used, the benefit provided should exclude any costs associated with entertaining a client, and only the employee’s proportion of meal entertainment is subject to FBT.
Important note:
If an employer elects to classify a fringe benefit as a meal entertainment fringe benefit, all fringe benefits arising from the provision of meal entertainment by the employer during the FBT year will be meal entertainment fringe benefits.
Should the employer elect not to use the Division 9A method, the employer will pay FBT based on actual meals (and associated travel and accommodation) provided to employees and their associates.
Below is a summary some of the differences between the application of the actual method and the 50/50 split method:
|
|
Actual Method |
50/50 Split Method |
|
To exclude any costs of entertaining clients |
Yes |
No |
|
To exclude minor and infrequent benefits (minor benefit/exempt FBT) |
Yes |
No |
|
Under section 41 of the FBT Act, even if the meals constitute entertainment, they should be exempt if: a. They are provided and consumed on the employer’s business premises; and b. This occurs on a working day. Does this exemption apply? |
Yes |
No |
Disclaimer: The material and contents provided in this blog are general guide and informative in nature only. They are not intended to be seen as legal and tax advice. If expert assistance is required, you should seek your own advice for any legal, tax or investment issues raised in your affairs.