Entities can only claim ITCs on deductible entertainment expenditure and entertainment expenditure that is subject to FBT. If, throughout the year, entities expect to use one method of calculating FBT on tax-exempt body entertainment and at year end the entities use another calculation method, they will be required to process an adjustment to the BAS.
For example, if an entity expects to use the 50/50 method for valuing tax-exempt body food and drink entertainment fringe benefits, throughout the year it will claim 50% of the ITCs attributable to tax-exempt body food and drink entertainment expenditure. If at year end it decides to use the actual method because it determines that only 45% of expenditure relates to employees, it will have to process an adjustment to the BAS equal to the ITCs on 5% of expenditure.
The adjustment should be made in the next BAS following lodgment of the FBT return in accordance with Subdivision 69-B of the A New Tax System (Goods and Services Tax) Act 1999.