15.7 Common circumstances in which food or drink is provided
The following are some common circumstances in which food or drink is provided by a tax-exempt body to their employees. The way FBT applies to food or drink provided in these circumstances is explained.
Providing alcohol generally means entertainment has been provided. However, in a narrow category of situations, you can provide alcohol to an employee without providing entertainment. These situations include where some (but not excessive) alcohol is provided to an employee:
- while they are on business travel overnight
- where providing the alcohol is reasonably incidental to an employee's attendance at certain business seminars.
Morning and afternoon teas, and light meals
Providing morning or afternoon tea, or light meals to your employees on your premises is not entertainment (and is therefore not a tax-exempt body entertainment fringe benefit) if you are providing them to help your employees complete the working day in comfort. In this situation, the food and drink you provide is exempt from FBT under the property exemption if you provide it on your premises and the food or drink is not provided under a salary sacrifice arrangement. If you provide the food or drink off your premises, you will need to consider the circumstances under which you provide it.
Providing morning or afternoon tea, or light meals to associates of your employees on your premises, is not entertainment. However, providing food and drink in this circumstance is a property fringe benefit. You will need to look at the rules for valuing property fringe benefits in order to work out the taxable value. The property exemption does not apply where the benefit is provided to an associate.
Morning and afternoon tea includes light refreshments such as tea, coffee, fruit drinks, cakes and biscuits, but does not include alcohol.
Light meals include sandwiches and other finger food, salads and orange juice that are intended to be, and can be, consumed on your premises or worksite. As light meals become more elaborate, they take on more of the characteristics of entertainment. Consider normal business practices to help work out when light meals become entertainment.
Note that the property exemption does not apply to food or drink provided under a salary packaging arrangement.
Example: Afternoon tea without alcohol
A tax-exempt body undertakes a research project. When the project is completed, the project participants provide a presentation to senior management. All staff involved in the research project attend the presentation. The presentation is undertaken on the business premises. An afternoon tea break is included in the presentation and afternoon tea consisting of tea, coffee, cakes and biscuits are provided.
The afternoon tea provided to the employees is exempt from FBT.
Example: Afternoon tea with alcohol
If the afternoon tea described above also included alcohol, it would be considered to have a social context and will be tax-exempt body entertainment. If the employer elects, it could also be meal entertainment instead
If you provide alcohol at a morning or afternoon tea, or light lunch, you are providing entertainment to your employees and their associates.
End of example
Meals provided to employees at in-house dining facilities
If you provide full hot meals to employees who are not on overnight business travel, you are providing entertainment. However, the expense you incur to provide full hot meals to employees at an in-house dining facility is an allowable income tax deduction to tax-paying bodies. This means it is not tax-exempt body entertainment.
Tax-paying bodies can only claim an income tax deduction if the food and drink is not provided at a party, reception or social function. If you provide full hot meals at an in-house dining facility (not at a party, reception or social function) this will be a property benefit and the property exemption will apply unless the meals are provided under a salary sacrifice arrangement.
What is an in-house dining facility?
A canteen, dining room or similar facility is an in-house dining facility if it meets all of the following requirements:
- located on your premises or, if you are a company on premises of a company related to you
- operated wholly or principally for providing food and drink on working days to your employees or, if you are a company to employees of a company related to you
- not open to the public at any time.
When we say 'principally', we mean operation mainly for providing food or drink. Whether a facility is operated principally for providing food and drink on working days to employees will ordinarily be determined on a time basis. That is, operated for this purpose more than 50% of the time it is used. However, you will also need to consider the facts, degree or impression of how the facility is used.
Provided the facility meets these three criteria, there is no restriction on where the food and drink is consumed. The food or drink provided in these facilities does not have to be consumed at the facility.
Example: Food and drink not consumed at the in-house dining facility
A tax-exempt body provides full hot meals to its employees in an in-house dining facility. Some employees consume the meals at their workstations and the meals are not provided under a salary sacrifice arrangement. Although providing the full hot meals to employees is entertainment, the property exemption will apply in these circumstances.
A canteen, dining room or similar facility can be an in-house dining facility even though it does not provide food and drink for all your employees. For example, a dining room for the sole use of your executive employees qualifies as an in-house dining facility.
End of example
What is not an in-house dining facility?
A boardroom or a meeting room with kitchen facilities is not an in-house dining facility because it is neither of the following:
- a canteen, a dining room or a facility similar to a canteen or a dining room
- operated wholly or principally for providing food and drink on working days to employees.
A boardroom or meeting room, whether or not it has associated kitchen facilities, is used or operates mainly as a venue for meetings or conferences. The costs of providing substantial meals in a boardroom or meeting room with associated kitchen facilities are not deductible, regardless of where the meals are consumed.
Example: Meals provided in an in-house dining facility - property exemption applies
A tax-exempt body provides hot lunches to employees in an in-house dining facility. The lunch is not provided under a salary sacrifice arrangement and it does amount to meal entertainment. However, it is a property benefit and the property exemption will apply.
Example: Meals provided in an in-house dining facility - property exemption does not apply
A tax-exempt body provides hot dinners to employees at its end-of-financial-year dinner. The dinner provided does amount to meal entertainment, but no income tax deduction would be available to tax-paying bodies. Meals provided in this instance are tax-exempt body entertainment fringe benefits and no exemptions apply.
End of example
Christmas parties, whether held on a tax-exempt employer's premises or at another venue, are entertainment and tax-exempt body entertainment fringe benefits.
A tax-exempt body hosts a Christmas party for its employees and their spouses on the employer's premises. This is tax-exempt body entertainment.
If clients attended, there would be no FBT on their portion, provided the tax-exempt body has not elected to use the meal entertainment valuation rules.
End of example
Gifts provided to employees at Christmas
Christmas gifts you provide to your employees at Christmas functions need to be considered separately when you work out whether the minor benefits exemption applies.
For example, hampers or presents you provide at a Christmas function are not considered to be entertainment. As these are not treated as tax-exempt body entertainment benefits, you can consider the minor benefits exemption. For example, if you give each of your employees a hamper at a particular Christmas function, each hamper is an exempt minor benefit if they cost less than $300 each and you meet the other conditions of the minor benefits exemption.
Food and drink provided to employees while on overnight business travel
If you provide food or drink, including some alcohol, to your employee while they are on overnight business travel, this is generally not the provision of entertainment. Food or drink provided in these circumstances is therefore not tax-exempt body entertainment, but will be an expense payment or a property fringe benefit. The 'otherwise deductible' rule applies to reduce the taxable value of the expense payment or property fringe benefit to nil.
If excessive alcohol is provided to employees while they are on overnight business travel, the food or drink you provide is considered entertainment. The provision of a meal to employees while they are on business travel overnight is also entertainment if they receive entertainment in conjunction with their meal, such as attending a floor show.
Example: Meals provided to employees while on overnight business travel - not entertainment
Two employees of a tax-exempt body dine together while travelling on business overnight and are later reimbursed by their employer.
The reimbursement of the meal expenses does not amount to entertainment and would be income tax deductible to the employer. Therefore, the reimbursement of the meals is not tax-exempt body entertainment; rather, it is an expense payment fringe benefit. The taxable value of the meals is reduced to nil because the meals would have been 'otherwise deductible' to the employees.
Example: Meals provided to employees while on overnight business travel - entertainment
Two employees of a tax-exempt body have dinner together while travelling on business overnight. They see a show at the casino in the city where they are staying and the fee to see the show includes dinner. Their employer reimburses them for the cost of the show entry, which includes meals.
This expenditure is entertainment and is tax-exempt body entertainment. The expense payment fringe benefit valuation rules could not apply in this circumstance as this is a tax-exempt body entertainment fringe benefit
End of example
Food and drink provided to employees at work functions
Where your employees are required to attend work functions as part of their employment duties, you will need to consider the circumstances of the situation and what duties are being performed by your employee in order to work out if entertainment has been provided. The fact that an employee is required to attend a function does not, by itself, mean that entertainment has not been provided.
For example, depending on the standard of entertainment provided, the benefit may qualify for the minor benefits exemption. As well as the general criteria for deciding whether a minor benefit should be treated as an exempt benefit, for tax-exempt bodies, the exemption is available only where the provision of the entertainment is incidental to the provision of entertainment to outsiders and does not consist of a meal, other than light refreshments.