FBT Bulletin No 1
ENTERTAINMENT EXPENSES
FBT IMPACT
GST INPUT TAX CREDITS
Entertainment
Issued 28th February 2002BT and ITCs
FBT Bulletin No 1
TABLE OF CONTENTS
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Topic
Page
Entertainment and FBT
What is entertainment?
Meal Entertainment
Non-meal entertainment
Determining whether food and drink is entertainment
Why?
What?
When?
Where?
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Food and Drink that is not Entertainment
Travelling on Business
Morning and Afternoon Tea
Light Meals/Working Lunches
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Food and Drink that is Entertainment But Not Subject to FBT
Seminars
Business Meeting conducted off site
Overtime awards
In-house dining facility
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Food and Drink that is Entertainment And Subject to FBT
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Common Misnomer - $100 Minor Benefit
Calculating the Taxable Value of Meal Entertainment
Associates
In the Contest of DE&Ts FBT return
In the Context of the School Council FBT return
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Claiming of Input Tax Credits
Appendix
Examples of Entertainment Expenses – FBT and GST Consequences
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Entertainment
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ENTERTAINMENT AND FBT
Fringe benefits tax is a tax payable by an employer in respect of fringe benefits;
 provided to an employee,
 provided to an associate of an employee, or
 provided to an employee by an associate of the employer.
There are various categories of benefits, one of which is tax-exempt body entertainment fringe benefits.
This benefit arises where an employer which is exempt from income tax, such as a school or DE&T,
provides entertainment to its employees and their associates.
When a tax-exempt body (eg school or DE&T) incurs entertainment expenses that are non-deductible for
income tax purposes, this will give rise to a tax-exempt body fringe benefit.
In general, entertainment expenses are non-deductible for income tax purposes. However there are some
specific exemptions to this general rule where entertainment is in fact tax deductible.
In order for DE&T to complete its annual FBT return, admin officers and employees who allocate
expenditure against account codes need an understanding as to what entertainment is, and what is nondeductible and deductible entertainment expenditure for income tax purposes.
The purpose of this manual is to take staff through the appropriate steps to understand how to treat
entertainment expenditure for FBT purposes as well as claiming input tax credits under the GST system
of tax.
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WHAT IS ENTERTAINMENT?
Entertainment is specifically defined in tax legislation as entertainment by way of;
 food,
 drink,
 recreation or
 accommodation or travel associated with the provision of food, drink or recreation.
It is important to note that the tax definition of entertainment specifically states that entertainment is
provided even if business discussions or transactions occur.
Meal Entertainment
The provision of entertainment by way of food or drink or accommodation or travel in respect of
that food or drink is considered to be “meal entertainment”.
Non-Meal Entertainment
Non-meal entertainment includes all entertainment other than meal entertainment – effectively
recreation and associated accommodation or travel. Recreation includes amusement, sport or
similar leisure time pursuits (eg admission tickets to Arts and sporting events).
This area is straightforward and generally contains no confusion as to what is and is not non-meal
entertainment. Accordingly the remainder of the paper will deal with meal entertainment.
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3 HOW TO DETERMINE WHETHER THE PROVISION OF FOOD AND DRINK
IS ENTERTAINMENT.
It is important to note that the definition of entertainment does not prescribe that all food or drink is
automatically classified as meal entertainment. The following factors, as outlined by the Australian
Taxation Office (ATO) in a tax ruling, need to be considered in determining whether the provision of
food and drink is entertainment:
a) Why is the food or drink provided?
If food or drink is provided as refreshment this does not generally have the character of entertainment.
On the other hand, the provision of food or drink in a social situation where the purpose is for the
employees to enjoy themselves is seen to be entertainment.
b) What food or drink is provided?
Light meals are not considered to be entertainment, but as the meals become more elaborate, they take
on the characteristics of entertainment. The more elaborate a meal, the greater the likelihood that
entertainment arises from the consumption of that meal. For example, the provision of a three-course
meal provided to an employee during a working lunch is likely to be entertainment, whereas the
provision of a sandwich lunch to an employee during a working lunch is more likely to be sustenance
rather than entertainment.
c) When is the food or drink provided?
The provision of food or drink during work time, or while the employee is travelling overnight is less
likely to be entertainment as it is provided for a work-related purpose rather than an entertainment
purpose. However a staff social function during work hours would be considered to be entertainment
as the purpose of the provision of food or drink is for entertainment.
d) Where is the food or drink provided?
Food or drink provided on the employer’s premises is less likely to be entertainment. However, food
or drink provided for example, in a hotel, restaurant, cafe, or coffee shop is more likely to be seen as
entertainment.
None of the factors above on its own will decide whether the provision of food or drink constitutes
entertainment. However more weight is given to the “why and what” factors.
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FOOD AND DRINK WHICH IS NOT ENTERTAINMENT
The ATO have specified that the following items do not come within the definition of entertainment and
as such are not classified as tax exempt body entertainment fringe benefits.
As such these items should not be coded to an account that is scrutinised for FBT purposes.
(DE&T entertainment accounts and CASES Account 128 for schools).
Travelling on Business Overnight
The food and drink (including wine etc with meal) consumed by an employee who is travelling
overnight in the course of performing employment duties is consumed as a result of that work related
travel and does not to confer entertainment on the employee. As such this is not considered to be
entertainment.
Morning and Afternoon Teas
The provision of morning and afternoon tea to employees and their associates on a working day, on an
employer’s premises is not entertainment.
Light Meals
The provision of light meals (finger food) when provided to employees on the employer’s premises in
the context of a working lunch is not entertainment and there is no FBT. Note that as light meals
become more elaborate these take on more of the characteristics of entertainment.
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FOOD AND DRINK WHICH IS ENTERTAINMENT BUT NOT
SUBJECT TO FBT
There are some categories of entertainment expenditure that are considered to be tax deductible for
income tax purposes, and so will not be subject to FBT as Tax-exempt Body Entertainment Fringe
Benefits. These items are specifically outlined in the income tax legislation which sets out the criteria
which must be satisfied for each category.
A)
Seminars
The cost of food, drink, accommodation or travel that is reasonably incidental to an employee attending
a seminar which goes for at least four hours is specifically treated as deductible entertainment and will
not be subject to FBT.
However there are certain definitions and criteria which must be met for the “event” to be classified as a
seminar.
Tax legislation defines a seminar to include,

a conference, convention, lecture, meeting, award presentation, speech, question and answer
session, training session or educational course.
In working out if the seminar goes for at least four hours, it must have a continuous duration of at least
four hours exclusive of all breaks including those for meals, rest and recreation.
A seminar must not be one of the following;
 a business meeting,
defined as meeting where the main purpose is for the individuals, who are associated with
the business, to give or receive information or discuss matters relating to the business.
(note the exception below)
 has as its main purpose the promotion or advertisement of the business or its goods or services,
 has the main purpose to provide entertainment.
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Business Meetings that Qualify as Seminars
In general business meetings are not eligible to be treated as a seminar.
However a business meeting will be treated as a seminar if both of the following conditions are met;
 it is organised by an employer for training employees or to enable employer/employees to discuss
general policy issues relevant to the internal management,
and
 is conducted off-site on property occupied by a person whose business includes organising
seminars or making property available for conducting seminars.
It is therefore important to note that more substantial meals provided as part of a business meeting
has the potential to be treated differently when the meeting is held on-site as opposed to being held
within a facility at the local conference centre/hotel.
B)
Industrial Agreements relating to Overtime
Where an industrial agreement relating to overtime specifies that food or drink be provided to an
employee, or an allowance paid to an employee to buy food or drink, this is considered to be tax
deductible expenditure for the employer and as such is not considered entertainment or subject to FBT.
C)
In-house dining facility.
An in-house dining facility is one which meets all the following conditions;
 is a canteen, a dining room, or similar facility,
 is located on employer’s premises,
 is operated mainly for the purpose of providing food and drink to employees and
 is not open to the public.
The expense of food and drink provided to employees and non-employees via an in-house dining facility
is deductible entertainment expenditure and will not be subject to FBT.
However, it should be noted that food or drink provided in an in-house dining facility for a party,
reception or social function will not be treated in the same manner. The tax legislation will define this as
non-deductible and hence it will be subject to FBT.
A conference room, meeting room or staff room with kitchen facilities is not considered to be an in-house
dining facility.
The school canteen would not satisfy the criteria of an in house dining facility as it is not operated mainly
for providing food and drink for the teachers and staff.
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FOOD AND DRINK WHICH IS ENTERTAINMENT AND IS
SUBJECT TO FBT
In general where there is a social connotation the function will be treated as subject to FBT.
The other point to note is that entertainment will be taken to be provided whether or not business
discussions take place. Therefore if a meeting is held, business discussions take place, over a meal at a
restaurant then this is subject to FBT.
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COMMON MISNOMER – ITEMS COSTING LESS THAN $100
The FBT legislation provides that some benefits are exempt from FBT. One such category is in respect
of minor benefits where benefit is less than $100 in value and is infrequently provided – commonly
referred to as the “minor benefit exemption”.
It should be noted however that this minor benefit exemption does not extend to entertainment benefits
that are provided to employees of income tax exempt organisations. Therefore entertainment benefits
provided to employees of DE&T which are infrequently provided and have a value less than $100 will be
subject to FBT.
The only time when an entertainment fringe benefit provided to a DE&T employee will be exempt from
FBT is when the function is held mainly for outsiders and the meal is not a sit down meal.
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CALCULATING THE TAXABLE VALUE OF MEAL
ENTERTAINMENT
There are three methods of valuation available for employers to value meal entertainment. DE&T has
selected the Actual Method as the one resulting in the least cost. This method must be used by all
sections of DE&T for all meal entertainment expenditure.
The actual method requires the employer to treat each item of expenditure on food and drink separately.
This method provides that the taxable value of the meal entertainment is the amount which is attributable
to the employee or an associate. Hence it is necessary to know whether the entertainment was provided
to employees, associates of employees or to clients/service providers.
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ASSOCIATES
Fringe benefits tax is a tax payable by an employer in respect of benefits;
 provided to an employee
 provided to an associate of an employee
 provided to an employee by an associate of the employer.
DE&T’S FBT Return
In the context of DE&T’s FBT return, this will include any benefits;
 provided by DE&T to their employees,
 provided by DE&T to associates of their employees and
 provided to DE&T employees by DE&T’s associates.
Employees of
DE&T
Associates of
DE&T employees
Associates of
DE&T
Entertainment
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All school staff, including principals, teachers and non-teaching staff.
Is defined in the income tax legislation to include
 A relative, which is defined as being a parent, grandparent,
brother, sister, uncle, aunt, nephew, niece, or adopted child of
that person, or of that person’s spouse
 a partner (as in business partnership),
 a spouse or defacto,
 a trustee of a trust that the person is a beneficiary
 a company that is effectively controlled by that person
Other Victorian State Government departments
School Councils
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School Council’s FBT Return
In the context of the School Council’s FBT return, this will include any benefits,
 provided by the School Council to their local payroll employees,
 provided by School Council to associates of their local payroll employees and
 provided to School Council local payroll employees by School Council’s associates.
Employees of
School Council
Local payroll employees
Associates of
School Council
employees
Is defined in the income tax legislation to include
 A relative, which is defined as being a parent, grandparent,
brother, sister, uncle, aunt, nephew, niece, or adopted child of
that person, or of that person’s spouse
 a partner (as in business partnership),
 a spouse or de facto,
 a trustee of a trust that the person is a beneficiary
 a company that is effectively controlled by that person
Associates of
School Council
Entertainment
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DE&T
Other Victorian State Government departments
TAFEs
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CLAIMING OF INPUT TAX CREDITS
The GST Act provides that input tax credits are available to the extent that an expense is made in the
course of carrying on the enterprise. The GST Act also provides that input tax credits are not available
for expenditure that is non-deductible.
As stated previously, entertainment (in general) is not tax deductible. However as outlined above there
are exceptions to this general rule – viz seminars, in-housing dining facilities – where various items are
considered to be deductible entertainment. The other exception to this general rule is that where
entertainment is subject to FBT then the amount which is subject to FBT becomes tax deductible.
Accordingly there are will be a whole range of outcomes associated with the claiming of input tax credits
in respect of entertainment expenditure.
Food and Drink which is Not Entertainment
In summary, in order to determine the availability of an input tax credit for expenditure which is not
considered to be entertainment, it is simply a matter of confirming that it incurred in the course of
carrying on an enterprise. Examples will include;
Morning tea to employees on a workday on the employer’s premises,
Food and drink provided to employees travelling overnight.
Food and Drink which is Entertainment But Not Subject to FBT
With respect to the items that by definition do not fall as non-deductible entertainment expenses, in order
to determine the availability of an input tax credit this is also a matter of confirming that the expenditure
is incurred in the course of carrying on an enterprise. Examples will include;
Food and drink provided as part of a seminar
Food and drink provided under an industrial award associated with overtime.
Food and Drink which is Entertainment And Subject to FBT
This leaves the final group of expenditure, which requires determination as to the availability of input tax
credits – this is the true entertainment expenditure. This amount is treated as non-deductible and the
portion in relation to employees and their associates is subject to FBT. As it is treated a subject to FBT,
this in turn makes the expenditure become tax deductible and hence the input tax credits are available.
With respect to the portion of the entertainment expenditure which relates to non-employees – eg
education consultants, service providers etc, this amount is non deductible entertainment and is not
subject to FBT and as such is not eligible for an input tax credit.
Food and Drink is Not Entertainment
But expenditure incurred in carrying on
enterprise
Food and drink is Tax Deductible Entertainment
Food and Drink is Entertainment and is subject
to FBT
Food and Drink is Entertainment and is Not
subject to FBT
Entertainment
FBT and ITCs
ITCs are available
ITCs are available
ITCs are available
ITCs are not available
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Appendix
Examples of Entertainment Expenses
– FBT and GST Consequences
Case studies cover topics
Meals Provided Whilst Travelling on Business
School Meetings/School Council Meetings On and Off Premises
Social Events and Curriculum Events
Business Lunches
Light Meals/Refreshments
Retirement Functions
Seminars
Entertainment
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