As we head into the festive season, here’s an outline of options for employers to choose how they calculate their FBT meal entertainment liability.
During this time of the year, in addition to the typical Christmas party, we generally see a marked increase across meal and recreational entertainment, as well as gifts. This includes:
- Friday night drinks;
- team lunches and dinners;
- client lunches and dinners;
- attendance at and sporting events; and
- Christmas gifts (vouchers/bottles of wine).
FBT implications – meal entertainment
Employers must choose how they calculate their Fringe benefits tax (FBT) meal entertainment liability. Most use either the “50/50” method or the “actual” method, rather than the “12-week” method.
It is important to note that neither of the following should usually be considered meal entertainment, irrespective of the method of calculation used:
- “sustenance”; and
- meals while travelling.
1. Using the “50/50” method
Under this method, irrespective of where the meal entertainment occurs or who attends, 50% of the total expenditure is subject to FBT and 50% is deductible for income tax purposes. However, the following traps must be considered:
- the “property exemption” available under the actual method won’t apply. This means even if the function is held on the employer’s premises, the food and drink provided to employees is not automatically exempt from FBT;
- the minor benefits exemption cannot apply; and
- the general taxi travel exemption (for travel to or from the employer’s premises) also cannot apply.
2. Using the “actual” method
Under the “actual” method, only the entertainment provided to employees and their associates is subject to FBT. In addition, where food and drink are consumed by employees on the employer’s premises, there will be no FBT due to the property exemption – this takes care of Friday night drinks in the office! But usually, the greatest reduction in FBT when using the actual method will come from the “minor benefits” exemption.
Where a benefit with a notional taxable value of less than $300 (including GST) is provided to an employee or an associate, the minor benefits exemption will generally apply to exempt the benefit from FBT.
We find that usually employers would save a considerable amount of FBT using the “actual” method (including removing the Christmas party!), however they usually don’t have the time to determine who received the benefit in order to apply the exemption.
The giving of gifts
Gifts provided to employees, or their associates, will typically constitute a property fringe benefit and therefore be subject to FBT unless the minor benefits exemption applies. Gifts, and all benefits associated with the Christmas function, should be considered separately to the Christmas party in light of the minor benefits exemption. For example, the cost of gifts such as vouchers, bottles of wine, or hampers given at the function should be looked at separately to determine if the minor benefits exemption applies to these benefits.
Gifts provided to clients are outside of the FBT rules but may be deductible if they are being made for the purposes of producing future assessable income.
Published 1 December, 2023