Legislation and ATO guidance

The term 'entertainment' is defined in section 32-10 of the Income Tax Assessment Act 1997 (ITAA 1997) as either:

  • entertainment by way of food, drink or recreation
  • accommodation or travel to do with providing entertainment by way of food, drink or recreation.

The cost of taxi travel by an employee from their place of work to a social function at a restaurant or function centre is not covered by the exemption under section 58Z of the FBTAA. It forms part of the cost of entertainment where the employer has elected to use the '50/50 method' or '12 week register method' available under the meal entertainment provisions.

End of attention

This definition is applied in determining when entities have provided tax-exempt body entertainment benefits. Tax-exempt body entertainment fringe benefits may include a food and drink component and a recreation component.

Provision of food and drink

The ATO has issued guidance documents to help understand what food and drink entertainment means, including Taxation Rulings IT 2675 and TR 97/17. These rulings highlight the issues that entities face in determining whether an event constitutes the provision of entertainment.

These rulings indicate whether or not circumstances constitute the provision of food and drink entertainment and whether an FBT liability arises. Care should be taken by Australian Government entities in interpreting TR 97/17 if an entity uses the 50/50 method for calculating tax-exempt food and drink entertainment. When using the 50/50 method, entities should include items marked as a Y in the Meal Entertainment column not just those that are marked as a Y in the Tax-exempt body FBT column.

The relevant legislative provisions, tax rulings and other ATO guidance require judgments to be made on a case-by-case basis, having regard to the particular circumstances of each activity.

In order to determine when food and drink provided to a person results in entertainment, it is necessary to examine all the circumstances surrounding the provision of the food or drink, including:

Factors to consider


1. Why is the food or drink being provided?

This is a purpose test. Is the food or drink being provided for employees:

  • to complete the working day in comfort, or
  • to enjoy themselves?

Providing refreshments to enable the employee to complete the working day in comfort is not generally entertainment.

Providing food or drink in a social situation where the purpose of the function is for employees to enjoy themselves is likely to be entertainment.

2. What type of food or drink is being provided?

The more elaborate a meal, the more likely that entertainment arises from consuming the meal.

Morning and afternoon teas and light meals are generally not considered to be entertainment. However, as light meals become more elaborate, they take on more of the characteristics of entertainment.

3. When is the food or drink being provided?

Food or drink provided during work time, during overtime or while an employee is travelling is less likely to be entertainment. This is because in the majority of these cases, food provided is for sustenance rather than an entertainment purpose.

However, this depends on whether the entertainment of the person is the expected outcome of the provision of the food or drink. For example, a staff social function held during work time still has the character of entertainment.

4. Where is the food or drink being provided?

Food or drink provided on the employer's business premises or at the usual place of work of the employee is less likely to have the character of entertainment.

Food or drink provided off the business premises (such as in a function room, hotel, restaurant, caf , coffee shop or consumed with other forms of entertainment) is more likely to have the character of entertainment. This is because the provision of the food or drink is less likely to have a work-related purpose.

None of these factors on their own will determine whether the food and drink provided is meal entertainment. However, 1 and 2 are considered the more important factors.

Where employees are required to attend work functions as part of their employment duties, the employer will need to examine the circumstances of the situation and what duties are being performed to determine whether entertainment has been provided. The fact that an employee is required to attend a function does not mean that entertainment has not been provided.

    Last modified: 17 Jul 2012QC 21998