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). Fringe benefits tax and entertainment update
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:
- a meal entertainment fringe benefit – where fringe benefits are provided by way of, or in connection with, food or drink
- an expense payment fringe benefit – for example, the cost of theatre tickets purchased by an employee that you reimburse
- a property fringe benefit – for example, providing food and drink
- a residual fringe benefit – for example, providing accommodation or transport
- a tax-exempt body entertainment fringe benefit – this category of fringe benefit involves only those employers who are exempt from income tax.
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, (the recording of which is featured below — 45 CPD minutes) provides advice on FBT and entertainment to employers, small business owners and tax professionals. 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.