Overview
There is a special category of fringe benefit called a 'tax-exempt body entertainment fringe benefit'.
This type of fringe benefit has fewer exemptions than other entertainment fringe benefits.
For example, a Christmas party on business premises would usually be an exempt benefit when provided by a commercial business, but a taxable benefit when provided by an income tax exempt body.
What is a tax-exempt body entertainment fringe benefit?
A tax-exempt body entertainment fringe benefit is entertainment that:
- is provided by an income tax exempt body
- is provided to employees or their associates (such as partners)
- would not be deductible for income tax purposes if your organisation paid income tax.
Definition of an income tax exempt body
Your organisation is an income tax exempt body if its income is either:
- wholly exempt from income tax
- partially exempt from income tax (for example, a club that earns income from both members and non-members).
Most not-for-profit organisations are income tax exempt bodies for the purposes of entertainment fringe benefits.
Deductibility test
To determine if the expenditure on entertainment would be deductible, ask yourself: 'If my organisation was required to pay income tax, would it be entitled to an income tax deduction for this expenditure?'
You apply this test to the expenditure itself, not the fringe benefit that may arise from it. Ignore that taxable entities may be entitled to a deduction for fringe benefits because the benefits are subject to fringe benefits tax (FBT).
Entertainment that meets the deductibility test
Some entertainment expenses would be deductible if your organisation was required to pay income tax, and therefore are not tax-exempt body entertainment fringe benefits. These include:
- the cost of meals provided to employees in a staff cafeteria (not including social functions)
- the cost of meals at certain business seminars
- meals on business travel overnight.