Entertainment: Getting it right

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Entertainment: Getting it right
Accommodation/travel connected with the
above
Entertainment is a
complex and often
misunderstood area for
Meal Entertainment
businesses. The
Meal entertainment incorporates the “by way of
interaction of tax
food or drink” part of the definition. For each
deductibility, GST and
Fringe Benefits Tax (FBT)
leads to a confusing array
of different outcomes for
transaction the following can assist in determining
whether the food/drink is meal entertainment:
Factors
More Likely
Less Likely
appear the same or very similar. Because of this
Why the
Social situation
Refreshment
it is an area that needs to be treated cautiously.
food/drink
or
is being
sustenance
situations that ostensibly
What is entertainment?
provided
Section 32-10 of the Income Tax Assessment Act
1997 defines entertainment as follows:
What type
Entertainment by way of food, drink or
food/drink
recreation or
is being
Accommodation or travel to do with providing
provided
entertainment by way of food, drink or
When the
Outside of work
Work time
recreation.
food/drink
time
(or
Entertainment takes on its ordinary meaning
which includes "something affording diversion or
amusement". It excludes the provision of items
such as bottles of wine, groceries, TV/DVD
players, computers and Coles Myer gift cards.
Lunches/dinners
Light
meals/snacks
of
is being
overtime)/
provided
overnight
travel
Where the
Not on business
On business
food/drink
premises
premises
is being
It should also be noted that, from the above
provided
definition there are two types of entertainment:
1.
Recreation
Some common examples of meal entertainment
2.
Meal Entertainment
are:
Breakfast, lunch or dinner at a restaurant
even if business issues/transactions are
discussed
Recreation
This category of entertainment is inclusive of
Friday night drinks at the office (including the
consumption of chips, finger food, etc)
everything but entertainment by way of food or
drink. This includes any form of amusement,
sport or leisure-time pursuit. Therefore, examples
of this would include:
Theatre/sporting tickets/golf or tennis
memberships
Provision of “Red Balloon” type gift cards
(e.g. skydiving, V8 racing, etc)
Food and drink consumed at a social function
on or off business premises (i.e. Christmas
party)
Food and drink consumed at an awards night
on or off business premises
Venue hire and entertainers for a social
function
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ACCOUNTANTS
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T: 03 9894 2500 F: 03 9894 1622
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Published March 2014
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Some common examples that are not meal
be deductible and GST input tax credits can be
entertainment are:
Tea/coffee, biscuits, soft drink for on-going
consumption on business premises
claimed. However, if it is not subject to FBT it will
Light refreshments (e.g. pastries, sandwiches,
juice, etc) consumed during a work meeting
or training session on business premises
Birthday cake consumed on business
premises
not be deductible and no GST input tax credits will
be claimable.
This can be particularly tricky for not-for-profit
organisations (such as charities and churches) as
special rules apply to entertainment for income
tax exempt organisations.
Light meals consumed on business premises
while working overtime
Keeping Records of Entertainment
Food or drink consumed during overnight
travel
is crucial to maintain accurate records. One of the
Light meal and drink consumed at a cafe by
an employee during a meal break on a work
day
Treatment of entertainment
Given the complex treatment of entertainment it
best ways is to ensure that transactions are
accurately coded in your general ledger so that
you are easily able to identify different types of
entertainment such as:
Meal entertainment – subject to FBT
Once you have determined that it is a transaction,
Meal entertainment – not subject to FBT
you then have to determine its treatment for
Recreation Entertainment – subject to FBT
income tax, FBT and GST purposes.
The correct process is to first consider the FBT
Recreation Entertainment – not subject to
FBT
consequences which will then lead to determining
This will allow you to have default GST codes
the treatment of the transaction for income tax
applicable to each account and to quickly
and GST purposes.
determine the tax deductibility of transactions.
Fringe Benefits Tax
Further information
Once you have identified that a transaction is
entertainment, it will generally be subject to FBT
unless an exemption applies.
For meal entertainment, one of the following
exemptions would have to apply:
The property benefit exemption
The $300 minor benefit exemption
The section 58Z exemption for certain taxi
travel
If meal entertainment is subject to FBT, you then
As is apparent from the brief explanation above,
this is an extremely complex area. We
recommend contacting us for assistance with
specific entertainment queries. For further
information and/or assistance please contact your
Saward Dawson advisor or any of the following
people at our office on 9894 2500, or via email:
Murray Nicholls [email protected]
Daniel Turcato daniel.turc[email protected]
have to determine which method you will choose
to adopt to value the benefits provided during the
Liability limited by a scheme approved under Professional
fringe benefits tax year. There are two methods
Standards Legislation
available:
The 50/50 split method
Disclaimer: This publication has been prepared on the basis
The actual method
of information available at the date of preparation. The
information is general in nature and is not to be taken as a
The choice of method will impact on the income
substitute for specific professional advice. We recommend
tax and GST implications of the meal
that our advice be sought on specific issues prior to acting
entertainment transaction but broadly speaking if
any type of entertainment is subject to FBT it will
on transactions affected. We acknowledge that the above
information has been prepared using the National Tax &
Accountants’ Association Ltd FBT 2014 Seminar Notes.
FocusOn Entertainment: Getting it Right
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