When many people think of fringe benefits tax, most automatically think Entertainment – boozy lunches and tickets to the corporate box. But entertainment includes a very wide variety of activities – from free movie tickets to junkets to foreign destinations. But as with all tax related matters, not all entertainment is taxed equally.
For a start, there are a number of fringe benefits which can be provided. For a start there are meals – food and drink. Then there could be tickets to a show or event and associated accommodation and transport. When I’m talking today about entertainment fringe benefits – they’re all included.
So, when will an employer have to pay fringe benefits on entertainment provide to employees? There are 4 questions to consider – why, what, when and where are the benefits being provided? Not any one of these questions on their own will determine whether an event is entertainment – all must be considered together.
Why is the food or drink being provided? If it’s for purposes, of refreshment then it won’t be entertainment. At the other end, if the purpose is for employees to enjoy themselves, it’s entertainment.
What is being provided? Morning and afternoon tea, fruit in the kitchen, light meals over a meeting. These would not be considered entertainment – their purpose is to sustain. As meals become elaborate, it’s more likely that they take the form of entertainment – dinner at a 3 hat restaurant can hardly be considered merely sustenance!
When food and drink is provided during work time, there’s less chance it will be entertainment. Once the activities are provided outside of hours or while the employee is away from their home city, it’s more likely to be entertainment.
Where is simply about whether it’s on the employer’s business premises or in a function room, restaurant etc.
So, some examples at the extreme end – a monthly lunch is provided on premises to all staff. There’s no alcohol and lunch is simple sandwiches from the local café. Clearly, there’s no entertainment.
At the other end – a staff member is given tickets to Harry Potter in Melbourne, together with flights, accommodation and dinner at a restaurant. Clearly a fringe benefit has been provided. As you can imagine, there’s a whole range in between and other complications – is there business travel involved; is alcohol provided; is a meal associated with the provision of training or professional development.
One common misconception is that where an employer pays for the annual Christmas part which is only for employees, it won’t be considered entertainment. However this won’t necessarily be the case. It is still necessary to go back to the Why, What, When and Where from above and assess each situation.
There is an exemption for minor and irregular benefits. As an employer, if the annual Christmas party (once a year, so irregular) is provided and the value of the benefit is less than $300 (the threshold for minor), it will be exempt from fringe benefits.
One thing to keep in mind is that entertainment fringe benefits are only applicable to employees and their associates. If it is entertainment provided to clients or business partners, there’s no fringe benefits liability. BUT before you get excited, remember this type of entertainment is NOT tax deductible and you cannot claim any GST input tax credits. However, if you are declaring and paying FBT, expenses are tax deductible and you can claim GST input tax credits.
So, once you have established that entertainment has been provided, you will have to value the benefit. There are two methods:
- 12 week register. For 12 weeks, you keep a register of all entertainment provided. This will include all people attending and must be split between employees (and associates) and others. Like a vehicle log book, this gives a percentage to apply to total entertainment expenditure. Note that there are some rules about when the register must be maintained.
- 50/50 split. Accumulate total entertainment expenditure and include half in your fringe benefits tax return. There’s no need to keep any records of who was in attendance.
Of course, it’s always an option to base the valuation on the actual expenditure for the entire year – that is keep a record of attendance for every function and split accordingly.
Unlike many other fringe benefits, it isn’t a requirement that the fringe benefits are reported on each individual’s payment summary.
With a bit of planning and thought, it isn’t always the case that entertainment has to end with a FBT bill.
Need to sort your FBT ASAP? I offer a FREE 30 minute initial consultation. You can easily book online here and I look forward to helping you sort your finances!