• Meal entertainment fringe benefits

    Where tax-exempt body entertainment fringe benefits arise from the provision of food, drink and associated accommodation and travel, an entity may choose to value these fringe benefits as meal entertainment fringe benefits. If this election is made, all fringe benefits arising from the provision of meal entertainment during the FBT year must be classified as meal entertainment fringe benefits.

    Attention

    The provision of meal entertainment does not include the provision of entertainment by recreation.

    End of attention

    There are two methods for calculating the taxable value of meal entertainment fringe benefits:

    1. 12 week register method: This method is based on the percentage of food and drink entertainment provided to employees and their associates as evidenced by a 12 week register. The register must be maintained for a representative period. It is not appropriate to maintain the register for a 12 week period when there are very few entertainment activities being provided.
    2. 50/50 method: Under this method, the taxable value is equal to 50% of total food and drink entertainment expenditure relating to employees and their associates as well as third parties.

    If an election is made to classify meal entertainment as a meal entertainment fringe benefit, neither the property benefits exemption, the minor benefits exemption or any other exemption will apply.

    If entities choose either of these valuation methods, they should record the taxable value in the meal entertainment row of the FBT return. Otherwise, entities should record the value in the tax-exempt body entertainment row of the FBT return.

    In considering which valuation method to use, an Australian Government entity should consider factors such as:

    • who is entertainment provided to (employees, associates or clients)
    • how often is entertainment provided
    • the approach that is easiest to administer
    • the approach that results in the lowest FBT liability.
    Actual expenditure

    Calculating taxable value based on actual expenditure may be most appropriate when:

    • entities provide the majority of the food and drink component of tax-exempt body entertainment to persons other than employees and their associates and the value of the food and drink provided at individual events or the total value of all food and drink provided during the FBT year is significant
    • records of attendees are available
    • entities provide the food and drink component of tax-exempt body entertainment infrequently.

    For example, entities that host a small number of social functions per FBT year, attended predominantly by persons other than employees and their associates, may consider calculating taxable value based on actual expenditure if the administrative costs of keeping records of attendees are expected to be minimal.

    When deciding to calculate the taxable value based on actual expenditure, entities should have regard to the likely expenditure on tax-exempt body food and drink entertainment as well as the availability of data relating to attendees. For example, if an entity hosted two events in the FBT year, attended primarily by persons other than employees and their associates, where the total expenditure was $500 and records of attendees are incomplete, the entity may choose to use the 50/50 method. Alternatively, if expenditure was more significant, the entity may choose to calculate taxable value based on actual expenditure if the reduction in the FBT liability would outweigh the administrative costs of maintaining records of who attended the function.

    If entities use the actual method to calculate the taxable value of tax-exempt body entertainment, the entity can claim ITCs for the GST paid on the proportion of such entertainment that is subject to FBT.

    12 week register method

    Calculating taxable value using the 12 week register method may be most appropriate when:

    • entities provide the majority of the food and drink component of tax-exempt body entertainment to persons other than employees and their associates
    • records of attendees are available for a representative 12 week period
    • entities provide the food and drink component of tax-exempt body entertainment frequently throughout the FBT year. If entities provide tax-exempt body food and drink entertainment regularly throughout the FBT year, primarily to persons other than employees and their associates, the 12 week register method will generally require less administration than calculating taxable value based on actual expenditure. This is because the register percentage calculated based on a 12 week representative period can be applied for the remainder of the FBT year without the need to maintain the detailed records that would be required if the taxable value was based on actual expenditure. The 12 week register can continue to be used for a further four consecutive years, provided there is less than 20% increase in total expenditure when compared to the year in which the register was maintained.

    As the 12 week register should be based on a representative period, the taxable value of the food and drink component of tax-exempt body entertainment provided to employees and their associates should be approximately equal to the taxable value that would have been determined based on actual expenditure.

    Where the food and drink component of tax-exempt body entertainment is provided primarily to persons other than employees and their associates, the 12 week register method will result in a lower taxable value than using the 50/50 method because the proportion of tax-exempt body food and drink entertainment provided to employees and their associates is less than 50%.

    If entities use the 12 week register method to calculate the taxable value of meal entertainment, the entity can claim ITCs for the GST paid on the proportion of entertainment provided to employees and their associates as evidenced by the 12 week register. That is, entities can claim ITCs for the GST paid on the proportion of meal entertainment on which FBT is paid.

    50/50 method

    Calculating taxable value using the 50/50 method may be most appropriate when:

    • entities provide a majority of the food and drink component of tax-exempt body entertainment to employees and their associates
    • there are insufficient records of attendees or it is impractical to keep details of attendees
    • entities regularly provide the food and drink component of tax-exempt body entertainment.

    The 50/50 method is generally the easiest method to administer because it only requires entities to record total meal entertainment expenditure rather than keep details of who the food and drink component of tax-exempt body entertainment was provided to.

    For example, entities that host a large number of social functions, attended predominantly by employees and their associates, would generally use the 50/50 method as there would be minimal record-keeping requirements and the FBT liability would be lower as it is calculated based on 50% of total expenditure.

    If entities use the 50/50 method to calculate the taxable value of meal entertainment, the entity can claim ITCs for the GST paid on 50% of total meal entertainment provided. That is, entities can claim ITCs for the GST paid on the proportion of meal entertainment on which FBT is paid.

    Timing of determining approach to calculating taxable value

    At the commencement of the FBT year, entities will generally determine the approach to calculating the taxable value of tax-exempt body food and drink entertainment benefits based on the anticipated nature and value of the benefits to be provided. Up until lodgment of the FBT return, entities may choose to use a different approach if circumstances relating to the availability of records, the proportion of entertainment provided to employees and associates and expenditure on tax-exempt body food and drink entertainment differs to what was anticipated.

      Last modified: 17 Jul 2012QC 21998