Food or drink provided on the premises
Food or drink that is not a tax-exempt body entertainment fringe benefit is exempt from fringe benefits tax (FBT) if you provide it:
- to current employees
- on your business premises
- on a working day.
The food or drink does not have to be prepared on your premises, as long as it is consumed on your premises.
However, FBT applies to food and drink provided:
- as part of a social function for staff (such as a Christmas party) – in this case it will generally be a tax-exempt body entertainment fringe benefit
- to associates of employees (such as their partners). If you provide food and drink to both employees and their associates, you can apportion the expenditure on a per head basis to work out your FBT.
To find out how these rules apply in specific situations, such as Christmas parties, see Common entertainment scenarios for income tax exempt bodies.
Meals provided by FBT-exempt organisations
You don't pay FBT for meal entertainment if you are a:
- public benevolent institution
- health promotion charity
- public or not-for-profit hospital
- public ambulance service.
There is a limit on this exemption if you provide the meal entertainment as part of a salary packaging arrangement. In this case, it is exempt only if the grossed-up value of the meal entertainment (and any entertainment facility leasing expenses) included in the arrangement is $5,000 or less.
Minor benefits
If you provide a tax-exempt body entertainment fringe benefit, it is exempt from FBT as a minor benefit if it meets these 3 conditions:
- The benefit has a taxable value of less than $300.
- It would be considered unreasonable to treat the benefit as a fringe benefit.
- The benefit is either:
- incidental to the provision of entertainment to outsiders, and does not consist of a meal other than light refreshments, or
- provided as part of a function held on your business premises solely to recognise the special work achievements of an employee. In this case the exemption applies only to the employee in question and their associates.
If you provide an entertainment benefit that is not a tax-exempt body entertainment fringe benefit, it only needs to meet conditions 1 and 2 to qualify for the minor benefit exemption.
Example: function to recognise special achievements of an employee
Michelle, an employee of a bowls club, is awarded 'Best client service staff member of the year' by the state clubs association. Michelle's bowls club hosts a dinner to celebrate the presentation of the award.
- The bowls club holds the dinner on its premises.
- The cost per head is $60.
- Staff from Michelle's bowls club attend the dinner, along with Michelle and her husband, staff from neighbouring clubs, and representatives from the state clubs association (who present the award).
The minor benefits exemption applies to Michelle and her husband, but not to the other employees of the bowls club.
End of example
Example: theatre tickets
The manager of a non-profit child care centre gives Graham, an employee, two theatre tickets to a popular show. The tickets have a total value of $210.
The theatre tickets are classified as recreation and are therefore a tax-exempt body entertainment fringe benefit.
The benefit is not incidental to entertaining outsiders, and is not part of a function on business premises solely to recognise an employee's work achievement.
Therefore the minor benefit exemption does not apply.
End of exampleTaxi travel
You don't pay FBT for providing taxi travel for an employee, if it is a single trip beginning or ending at the employee's place of work.
Reducing your FBT
You can reduce your FBT (or eliminate it entirely) by:
- giving employees a cash bonus instead of a benefit (the employee would then pay income tax on the bonus, instead of you paying FBT on the benefit)
- providing a benefit that the employee could have claimed as an income tax deduction, had they paid for it themselves (this is called the 'otherwise deductible rule').
Example: benefit deductible for employee
Mary is the Events and Culture Manager of the Blesh City Council. She is required to preview a stage play in another city for possible inclusion in the council's theatre program for the coming year. The council pays the travelling and entry costs for Mary to attend the play.
If Mary had paid to attend the play, it would have been a deductible expense for her.
Under the 'otherwise deductible rule', the Blesh City Council is not required to pay FBT on the benefit it has provided to its employee.
End of exampleEmployee contributions
If a benefit is not a tax-exempt body entertainment fringe benefit, you can reduce its taxable value by having employees contribute to the cost.
If a benefit is a tax-exempt body entertainment fringe benefit:
- You cannot reduce the value of the benefit by having employee contributions paid to you.
- If a third party provides the benefit, and your employee pays a contribution directly to that third party, the value of the benefit is reduced by the amount of the employee contribution, provided you are invoiced for the net amount.
GST and entertainment
If you pay FBT on entertainment, you can claim GST credits for the cost of providing the entertainment.
When your organisation may be exempt from FBT on food, drink and recreation, and how to reduce your FBT.