Who can use these scenarios
These scenarios apply to income tax exempt bodies. For fringe benefits tax (FBT) purposes, a not-for-profit or government 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).
There are different scenarios for commercial businesses.
Meal entertainment quick reference
This list summarises the FBT implications when an income tax exempt body provides food and drink, either on or off the organisation's premises.
Staff social function, such as a Christmas party
- meal entertainment: yes
- employees: FBT applies
- associates: FBT applies
- clients: FBT does not apply
In-house dining facility – not at a social function
- meal entertainment: no
- employees: FBT does not apply
- associates: FBT applies
- clients: FBT does not apply
In-house dining facility – at a social function
- meal entertainment: yes
- employees: FBT applies
- associates: FBT applies
- clients: FBT does not apply
Morning and afternoon teas and light lunches
- meal entertainment: no
- employees: FBT does not apply
- associates: FBT applies
- clients: FBT does not apply
Employee on business travel overnight
The following apply whether the employee is dining by themselves or with another employee, an employee of an associated entity or a client who is also on business travel overnight, and regardless of who pays:
- Meal entertainment: no
- employees: FBT does not apply
- associates: FBT applies
- clients: FBT does not apply
Christmas parties and gifts
If you hold a staff Christmas party it is a tax-exempt body entertainment fringe benefit.
- FBT applies to the cost of providing the party for employees and their associates (such as their partners).
- You don't pay FBT for any clients who attend.
The minor benefits exemption is available in limited circumstances, such as where you host a Christmas morning tea for your sponsors, and the entertainment provided to employees is incidental to entertaining the sponsors.
If you give an employee a Christmas gift or hamper, it is generally exempt from FBT if it is a minor benefit of less than $300.
Example: Christmas party on premises
A football club hosts a staff Christmas party.
- The party is held on the club's premises.
- Employees of the football club and their partners attend.
- The club provides a buffet dinner and alcoholic and non-alcoholic drinks.
Entertainment is being provided
A Christmas party for employees and their associates is entertainment, whether the party is held on the organisation's premises or at another venue. Food and drink have been provided in a social situation where the purpose of the function is for employees to enjoy themselves.
Employees and associates – FBT applies
The Christmas party is a tax-exempt body entertainment fringe benefit. The minor benefits exemption does not apply because the entertainment is not incidental to entertaining outsiders. FBT applies to the meals and drinks provided to the employees and their associates.
GST credits
The football club can claim GST credits for the cost of the Christmas party.
End of exampleFunctions for outsiders
Example: thank you party for sponsors
An arts society hosts an end of financial year party to thank sponsors who have supported them.
- Invited sponsors, senior employees and their partners attend the party.
- The arts society holds the party on its premises after close of business.
- The arts society provides finger food and drinks, at a cost of $25 per head.
Entertainment is being provided
Providing food and drink in this way is entertainment.
Employees and associates – no FBT, exemption applies
For the employees and their associates the party is a tax-exempt body entertainment fringe benefit. However, the minor benefits exemption applies, because the entertainment was incidental to entertaining outsiders. The arts society is not required to pay FBT.
Sponsors – no FBT
There is no FBT on benefits provided to outsiders.
GST credits
The arts society cannot claim GST credits for the food and drink provided to employees, their associates or sponsors.
End of exampleFunctions hosted by outsiders
Example: government employees at a private company product launch
Employees of a state government department attend a product launch hosted by ACO, a private company.
- ACO holds the launch on its premises.
- Finger food and alcohol are provided during the launch.
The government department employees had helped ACO develop and market the new product. Attendance at these types of functions is included in their duty statements. They are there to support the launch of the product, market the department and answer questions from other businesses about how the state government can help them.
The main focus of the evening is the launch of the product, not the marketing of the state government department.
Entertainment is being provided
Even though the department's staff are expected to attend the business function, it may still be considered entertainment.
To determine if entertainment has been provided, the state government department needs to consider:
- why the food or drink is being provided – it is for attendees at the launch to enjoy themselves
- what type of food or drink is being provided – the function includes alcohol, which indicates that entertainment is being provided
- when the food or drink is being provided – it is outside of normal business hours
- where the food or drink is being provided – it is at ACO's business premises.
Employees – FBT applies
The minor benefits exemption does not apply because the entertainment is not incidental to entertaining outsiders. Even though the department's employees are required to attend as part of their duties, the main focus of the evening is the product launch.
Who pays the FBT
The department is liable to pay the FBT on the value of the entertainment provided to their employees at the launch. ACO provided the entertainment to the government employees under an arrangement with the state government.
GST credits
The state government department cannot claim GST credits.
End of exampleWorking lunches
Example: working lunch on premises
A group of employees at a conservation association are working on a project to develop a new fundraising campaign. They call a planning meeting to discuss timeframes and finance issues.
Due to a tight schedule, pizza and soft drinks are ordered and delivered to their offices in the association's headquarters for a working lunch. The conservation association pays for the pizza and soft drinks.
Entertainment is not being provided
A light meal without alcohol, ordered in for lunch while working on a project with a specific deadline, is not entertainment.
Employees – no FBT, exemption applies
The conservation association doesn't pay FBT because the food and drink is consumed by employees on a working day at the work premises. It is an exempt property benefit.
GST credits
The conservation association can claim GST credits for the food and drink provided.
End of exampleMorning and afternoon teas
Example: morning tea to celebrate opening of new office
A relationship counselling organisation holds a morning tea to celebrate the opening of its new premises.
- The morning tea is provided on the new premises on a working day and consists of biscuits, cake, coffee and soft drink.
- Attendees include employees and invited guests.
Entertainment is not being provided
Providing a morning tea of biscuits, cake, tea, coffee and soft drink is not entertainment.
Employees – no FBT, exemption applies
The property benefits exemption applies for the employees because the food and drink is consumed on a working day at the work premises.
Invited guests – no FBT
There is no FBT on benefits provided to the invited guests.
GST credits
The employer can claim GST credits for the food and drink provided to its employees and invited guests.
End of exampleMeals for employees working in hospitality
Example: meals provided to employees at an RSL club
The staff at a large RSL club have shifts at different times of the day and night, and many work part time.
- The club's dining facilities include a large buffet restaurant, and another dining area that serves light meals and beverages from 10:00 am to midnight.
- The club provides employees with lunch from the dining area or dinner from the buffet restaurant during their rostered work hours.
- The RSL club is partially exempt from income tax as it does not pay tax on income received from members. This means the RSL club is an income tax exempt body for the purposes of entertainment-related fringe benefits.
Entertainment is being provided
Providing employees with meals from the buffet is entertainment.
As meals provided in a dining facility to employees are usually income tax deductible, the light meals from the dining room are not a tax-exempt body entertainment fringe benefit. Therefore they are an exempt property benefit.
Employees – no FBT, exemption applies
The property benefits exemption applies because the meals are being provided to current employees on a working day on business premises.
GST credits
The RSL club can claim GST credits for the food and drink.
End of exampleRecreational activities
Example: ten-pin bowling competition
Employees of a not-for-profit educational institution participate in a ten-pin bowling competition.
- The educational institution pays for the cost of the games, shoe hire and light refreshments at the bowling alley.
- The educational institution is a registered charity and is endorsed with income tax exemption by the ATO. This means the educational institution is an income tax exempt body for the purposes of entertainment-related fringe benefits.
Entertainment is being provided
Paying for employees to play ten-pin bowling is recreational entertainment.
The activity would not be tax deductible for the employer (if it was an income tax paying body), so it is a tax-exempt body entertainment fringe benefit.
Employees – FBT applies
The minor benefits exemption does not apply because the entertainment is not incidental to the provision of entertainment to outsiders.
GST credits
The educational institution can claim GST credits for the cost of their employees participating in the competition.
End of example
Example: overnight team building activity for government employees
A state government department participates in interdepartmental games each year.
- Employees and their families from various state and territory government departments attend.
- The games are held over 2 weekdays at stadiums owned by private companies.
- The department pays for entry fees, food, drink, accommodation, and travel to and from the games. The food and drink includes 3-course meals, and alcohol at dinner.
- Physical fitness is a requirement of employment for the employees.
Entertainment is being provided
The fee to attend the games, accommodation, and travel to and from the games, is recreational entertainment.
The food and drink is also entertainment.
Employees and their families – FBT applies
- Food and drink: the minor benefits exemption does not apply because the entertainment was not incidental to entertaining outsiders.
- Fee to attend games, accommodation and travel to games: these costs are recreational entertainment and are not exempt.
Who pays the FBT
Each government department is liable to pay the FBT on the recreational entertainment.
The FBT on the food and drink can be paid by one government department or by each government department.
GST credits
Each government department can claim GST credits for the value of the entertainment provided.
End of exampleSeminars
The 'otherwise deductible' rule may apply to food or drink provided at seminars.
This means you (as the employer) do not pay FBT on an expense your employee could have claimed as a deduction, had they paid for it themselves.
It works like this:
- If the food or drink at a seminar does not amount to entertainment
- then the registration fee would have been deductible in full and the employer does not pay FBT.
- If the food or drink at a seminar does amount to entertainment, and
- is reasonably incidental to the employee attending a seminar that goes for at least 4 hours – the registration fee is deductible and the employer does not pay FBT
- is not reasonably incidental to the employee attending a seminar that goes for at least 4 hours – only that proportion of the registration fee that does not relate to the food or drink would have been deductible, and the employer pays FBT on the remainder.
Meaning of 'seminar'
A seminar is:
- any training session, including a conference, convention, lecture, meeting, speech, question and answer session or educational course
- a planning day
- at which employees discuss general policy issues relevant to the management of your business
- conducted at an external premises available for conferences, training or seminars
- not a business meeting, where the main purpose of the meeting is to give or receive information, or discuss matters relating to the organisation
- not a marketing presentation, where the main purpose is to promote a business (or prospective business) or its products and services.
Meaning of 'reasonably incidental'
Food or drink is reasonably incidental to a seminar if it is:
- provided for sustenance because of the duration, time of day or location of the seminar
- provided immediately before, during or immediately following working sessions of the seminar
- available to all participants.
Duration of at least 4 hours
For the purposes of the otherwise deductible rule, the seminar must go for at least 4 hours.
The 4-hour period does not include any part of the seminar that occurs during a meal, or any breaks during the seminar for meals, rest or recreation.
Example: seminar includes food and drink
A not-for-profit vocational guidance organisation pays for an employee to attend a seminar about adult learning trends.
- The seminar is held from 9.00 am to 4.00 pm in a city hotel.
- Morning and afternoon tea and lunch are provided during the day.
The food and drink does not amount to entertainment. It is a property fringe benefit.
The full cost of attending the seminar would have been income tax deductible to the employee, had they paid for it. Therefore the taxable value of the property fringe benefit can be reduced to nil under the 'otherwise deductible' rule.
The employer is not required to pay FBT.
End of example