It is common across many industries to take both existing clients and potential clients out for meals to build on their business relationship, with costs often covered by one party. Business owners sometimes take high performing employees to lunch as a reward.

These could be considered “Meal Entertainment” and unless the business owner intends on paying the appropriate amount for fringe benefit tax (FBT), no deduction is allowed and the GST cannot be claimed. 

 What is considered to be Meal Entertainment

Entertainment is defined as;

  • Entertainment by way of food or drink;
  • Accommodation or travel associated with, or for the purpose of facilitating entertainment by way of food or drink; or
  • Payment or reimbursement of expenses incurred in providing one or both of the above

Some of the more common practices that are included as meal entertainment are;

  • Taking your employees out for lunch 
  • Meeting with clients at a cafe or restaurant for a meal or drink 
  • Social functions, such as Christmas parties where food or drink are supplied

One of the most difficult tasks for employers is determining if entertainment has been provided, as the provision of food or drink does not automatically mean that entertainment has been provided. 

The distinction between meal entertainment and other forms of entertainment are important as;

  • Meal entertainment benefits are generally not required to be shown on the employees PAYG Payment Summaries as reportable benefits unless they are salary packaged by the employee. 
  • Entertainment by way of recreation is a reportable fringe benefit, and counts towards an employee’s FBT exemption or FBT rebate cap (where applicable);
  • Meal entertainment is treated concessionally for FBT rebatable employers and is fully exempt from FBT when provided by public benevolent institutions, public and not-for-profit hospitals, ambulance services and health promotion charities. 
  • If meal entertainment or entertainment facility leasing expenses have been salary packaged, it will count towards the employee’s FBT exemption or FBT rebate cap. 

Are there any exemptions?

There are two common exemptions that can remove the FBT liability. 

Minor Benefit Exemption

This is the most common exemption that can be applied if;

  • The cost of the benefit is less than $300 (per person)
  • The benefit is not provided frequently

The above conditions must be satisfied for the meal entertainment benefit to be exempt. For example, taking an employee out to lunch once a year to reward their high performance would be exempt as it would be an infrequent occurrence and if the cost was less than $300.

Alternatively, if you are taking your employee to lunch as a weekly occurrence where the employer covers the cost, this no longer satisfies the infrequent conditions above and the benefits are subject to FBT, even though the cost is less than $300 per person.

In House Meals

Simple meals such as sandwiches and juice provided to employees within your office are not subjected to FBT and are deductible. If the meals become more complex, such as the inclusion of alcohol or multiple courses, this may alter the characteristic of the benefit provided and the tax deduction may be lost.

The provision of meal entertainment can be a taxation minefield, we strongly recommend you contact our office if you have any questions regarding your business practices and how you reward your employees.