Fringe benefits tax and entertainment

In the run up to the end of the FBT year, the ATO reminds employers that a fringe benefit may be provided by another person on behalf of an employer, but may also be provided to another person on behalf of an employee (for example, a relative).

As far as “entertainment” goes, the ATO says such benefits include providing:

  • entertainment by way of food, drink or recreation
  • accommodation or travel in connection with, or to facilitate the provision of, such entertainment.

Recreation includes amusement, sport and similar leisure-time pursuits and includes recreation and amusement in vehicles, vessels or aircraft (for example, joy flights, sightseeing tours, harbour cruises).

Some examples of the provision of entertainment are:

  • business lunches and drinks, cocktail parties and staff social functions
  • providing entertainment to employees and clients by providing access to sporting or theatrical events, sightseeing tours, holidays and so on
  • accommodation and travel when it is provided in connection with, or to facilitate, activities such as entertaining clients and employees over a weekend at a tourist resort, or providing them with a holiday.

No such category
The ATO says however that there is no FBT category of “entertainment fringe benefit” as such. Instead, the provision of entertainment may give rise to a number of different types of fringe benefit, depending on the circumstances under which you provide the entertainment.

The different types of fringe benefit that may arise are:

Exemptions to FBT
Apart from the “minor benefits exemption” (generally where the value is less than $300), there is an exemption that applies to providing food and drink in the following circumstances.

Food and/or drink provided to, and consumed by, current employees on the business premises on a working day are exempt property benefits (refer to section 20.6 of Fringe benefits tax exempt benefits). The exemption from FBT applies regardless of whether:

  • the food and drink is prepared on business premises (but remember, a corporate box is not part of a business’s premises)
  • entertainment arises from the provision of food and/or drink.

Food and/or drink provided on business premises to associates of employees (for example, spouses) is not exempt from FBT. Where food and/or drink is provided on the same occasion to both employees and their associates, there may have to be an apportionment of the expenditure on a per head basis.

This exemption does not apply to:

  • employers who are exempt from income tax when entertainment arises from the provision of food and/or drink
  • income tax-paying bodies that elect to value the entertainment as meal entertainment
  • meals provided under a salary sacrifice arrangement after 7.30pm AEST on May 13, 2008.

A relatively recent ATO webinar, provides advice on FBT and entertainment to employers and small business owners. It covers:

  • when the provision of food, drink or recreation may be considered entertainment
  • whether the entertainment is subject to FBT
  • the methods available for valuing entertainment fringe benefits.