What is entertainment?
Providing entertainment means:
- providing entertainment by way of food, drink or recreation
- providing accommodation or travel in connection with such entertainment.
Non-profit organisations, may, from time to time, provide their employees and/or their associates with food and drink, gifts, and possibly leisure activities. This may happen in a variety of circumstances and in relation to a number of different employees and/or their associates.
If these events are sometimes provided for staff in your organisation, you will need to know whether they may be classified as entertainment and incur a fringe benefits tax (FBT) liability.
What is recreation?
Recreation includes amusement, sport and similar leisure time activities, for example, a game of golf, theatre or movie tickets, a joyflight or a harbour cruise.
Entertainment and FBT categories
The FBT law identifies various types of fringe benefits and has specific valuation rules for each type of benefit. We provide an overview of the types of benefits that may arise from providing entertainment.
There is no category of fringe benefit called an entertainment fringe benefit, but the following different types of fringe benefit may arise from providing entertainment:
- an expense payment fringe benefit, for example, the cost of theatre tickets purchased by an employee and reimbursed by the employer
- a property fringe benefit, for example, providing food or drink
- a residual fringe benefit, for example, providing accommodation or transport, or
- a meal entertainment fringe benefit, for example providing food or drink that is entertainment to associates of your employees.
What is tax-exempt body entertainment?
Most non-profit organisations are income-tax exempt. The FBT rules around providing entertainment to employees (and their associates) are different to those of income tax paying bodies. There are different rules for tax-exempt bodies when it comes to providing entertainment because they do not pay income tax
A tax-exempt body entertainment fringe benefit is non-deductible entertainment provided to employees (and their associates) by a tax-exempt body.
- Only entertainment that is non-deductible for income tax purposes can give rise to this benefit.
- Where entertainment is deductible, it is not a tax-exempt body entertainment fringe benefit.
For the purpose of identifying a tax-exempt body entertainment fringe benefit, and determining whether the expenditure is deductible for income tax purposes, you are treated as though you are a taxable entity. That is, you should ask yourself, 'If my organisation paid income tax, would the organisation be entitled to an income tax deduction for this expenditure?'
Generally, entertainment expenses are non-deductible for income tax purposes. However, some specific entertainment expenses are deductible, for example:
- the cost of meals provided to employees in a staff cafeteria (not including social functions)
- the cost of meals at certain business seminars
- meals on business travel overnight.