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MEALS, MEETINGS AND CHRISMAS PARTIES

WITH STAFF AND CLIENTS 

TAX DEDUCTIONS AND FRINGE BENEFITS TAX

 

30 JUNE 2017 / 31 MARCH 2017 FBT YEAR

Meals, Meetings and Christmas Parties

Expenses incurred whilst having a meal or meeting with staff or clients are

usually not a tax deduction and may be subject to Fringe BenefitsTax.

 

Some exceptions are:

 

The following has been cut and pasted from the ATO website

 

"14.15 Income tax deductibility

As a general rule, you are not allowed an income tax deduction for expenses incurred in providing entertainment. This is the case even if the entertainment is provided specifically for business reasons, such as business lunches and entertaining clients, or in connection with the performance of employment-related duties.

There are a number of exceptions to the general non-deductibility rule. Briefly, they include the following:

The cost of entertaining clients and suppliers (that is, not employees or associates of employees) remains non-deductible except for the limited range of circumstances described above where the income tax law may allow a deduction."

"14.9 Common circumstances in which food or drink is provided

The following are some common circumstances in which food or drink is provided by a taxable entity. The FBT consequences of providing food or drink in these circumstances are explained.

The provision of alcohol generally means that entertainment has been provided. However, there is a narrow category of situations where alcohol is provided to an employee while they are on business travel overnight or where the provision of alcohol is reasonably incidental to an employee's attendance at certain business seminars.

Morning and afternoon teas and light meals

Providing morning or afternoon tea or light meals to your employees on your premises is not entertainment (and, therefore, is not meal entertainment), where you are providing refreshments to enable the employee to complete the working day in comfort. The provision of food or drink in these circumstances is exempt from FBT under the property exemption if the food or drink is provided on your premises. If the food or drink is provided off your premises, you will need to consider the circumstances surrounding the provision of the food or drink.

Providing morning or afternoon tea or light meals to associates of your employees on your premises is not entertainment. However, the provision of food or drink in this circumstance is a property fringe benefit. You will need to look at the rules for valuing property fringe benefits in order to determine the taxable value. The property exemption does not apply where the benefit is provided to an associate.

Morning and afternoon tea includes light refreshments such as tea, coffee, fruit drinks, cakes and biscuits, but does not include alcohol.

Light meals include sandwiches and other hand food, salads and orange juice that are intended to be, and can be, consumed on your premises or worksite. As light meals become more elaborate, they take on more of the characteristics of entertainment. Normal business practice determines when light meals become entertainment.

Example: afternoon tea without alcohol

A taxable entity undertakes a research project. When the project is completed, a presentation by the participants in the project is provided to senior management. All staff involved in the research project attend the presentation. The presentation is undertaken on the business premises. An afternoon tea break is included in the presentation and afternoon tea consisting of tea, coffee, cakes and biscuits are provided. The afternoon tea provided to the employees is exempt from FBT.

Example: afternoon tea with alcohol

Assume the same facts as above apply, however alcohol is provided. As alcohol has been provided, the afternoon tea provided to employees in this situation is considered to have a social context. The afternoon tea is entertainment. This will be a property fringe benefit and the property exemption will apply, unless the employer elects to value the entertainment as meal entertainment.

If alcohol is provided at the morning or afternoon tea or light lunch, you are providing entertainment to your employees and their associates."

 

"Christmas parties

There is no separate FBT category for Christmas parties and you may encounter many different circumstances when providing these events to your staff. Fringe benefits provided by you, an associate or under an arrangement with a third party to any current employees, past and future employees and their associates (spouses and children), may attract FBT.

 

Implications for a taxpaying body

If you are not a tax-exempt organisation (refer to Tax-exempt body entertainment fringe benefits), the following explanations may help you determine whether there are FBT implications arising from a Christmas party.

 

Exempt property benefits

If you don't use either the 50-50 split method or the 12-week register method for meal entertainment (refer to section 14.8), the costs (such as food and drink) associated with Christmas parties are exempt from FBT if they are provided on a working day on your business premises and consumed by current employees (refer to section 20.6 of Fringe benefits tax exempt benefits).

A taxable fringe benefit will arise in respect of an associate of an employee who attends the party if not otherwise exempt under the minor benefits exemption (refer to section 20.8 of Fringe benefits tax exempt benefits).

Exempt benefits - minor benefits

The minor benefits rules that apply to Christmas parties are no different from those that apply to any other benefits. Where you provide a Christmas party for your employees and their partners you don't add the costs together, but instead look at the cost of the benefit provided to each person. Each benefit that is less than $300 may be a minor benefit and exempt if certain conditions are met (refer to section 20.8 of Fringe benefits tax exempt benefits). Before 1 April 2007, the minor benefits threshold was less than $100.

The minor benefits exemption can apply if you use the 12-week register method for valuing meal entertainment benefits.

Gifts provided to employees at a Christmas party

All benefits associated with the Christmas function should be considered separately to the Christmas party when considering the minor benefits exemption. For example, the cost of gifts such as bottles of wine and hampers given at the function should be looked at separately to determine if the minor benefits exemption applies to these benefits.

 

Tax deductibility of a Christmas party

The cost of providing a Christmas party is income tax deductible only to the extent that it is subject to FBT. Therefore, any costs that are exempt from FBT (that is, exempt minor benefits and exempt property benefits) can't be claimed as an income tax deduction.

The costs of entertaining clients are not subject to FBT and are not income tax deductible.

Christmas party held on the business premises

A Christmas party provided to current employees on your business premises or worksite on a working day may be an exempt benefit. The cost of associates attending the Christmas party is not exempt.

 

Christmas party held off the business premises

The costs associated with Christmas parties held off your business premises (for example, a restaurant) will give rise to a taxable fringe benefit for employees and their associates unless the benefits are exempt minor benefits (refer to section 20.8 of Fringe benefits tax exempt benefits).

 

 

Food or drink provided to employees while on business travel overnight

If you provide food or drink, including some alcohol, to your employee while they are on business travel overnight, this is generally not the provision of entertainment. Food or drink provided in these circumstances is, therefore, not meal entertainment, but will be an expense payment or a property fringe benefit. The 'otherwise deductible' rule applies to reduce the taxable value of the expense payment or property fringe benefit to nil.

If excessive alcohol is provided to employees while they are on business travel overnight, the provision of the food or drink is considered entertainment. The provision of a meal to employees while they are on business travel overnight is also entertainment if they receive entertainment in conjunction with their meal, such as attending a floor show.

Example: meals provided to employees while on business travel overnight not entertainment

Two employees of an employer dine together while travelling on business overnight and are subsequently reimbursed by their employer.

The reimbursement of the meal expenses does not amount to entertainment and would be income tax deductible to the employer. Therefore, the reimbursement of the meals is not meal entertainment, but is an expense payment fringe benefit. The taxable value of the meals is reduced to nil because the meals would have been 'otherwise deductible' to the employees."

 

"Entertainment table

The following table gives a simplified summary of the FBT and income tax results that generally arise from providing entertainment to employees and others. The table is not intended for use by income tax-exempt employers.

Situation

Income tax

FBT

Employee takes two clients to lunch at a restaurant - cost $150

Employee's portion
$50 tax deductible

Client's portion
$100 non-deductible

Employee's portion
$50 fringe benefit

Client's portion
No FBT

Employee has meal in restaurant while travelling on business trip

Tax deductible

No FBT

('otherwise deductible' rule)

Employee has meal in an 'in-house canteen'

Tax deductible

Exempt from FBT

Employer provides sandwiches and juice for working lunch in office (not entertainment)

Tax deductible

Exempt from FBT

Employer provides substantial lunch with wine for employees in office but not in 'canteen'

Non-deductible

Exempt from FBT

Employer provides social function for employees in office

Non-deductible

Exempt from FBT

Employer provides social function for employees and associates in office

Cost per employee

Non-deductible

Cost per associate

Tax deductible

Cost per employee

Exempt benefit

Cost per associate

Taxable fringe benefit

Employer reimburses employee for cost of private party

Amount reimbursed is tax deductible

Taxable fringe benefit

Employer provides employee and associates with theatre tickets

Tax deductible

Taxable fringe benefit

"

14.3 How to identify whether the provision of food or drink is entertainment

In order to determine when food or drink provided to a person results in entertainment, you need to examine the circumstances surrounding that provision of the food or drink. You need to look at the following.

Attention

None of the factors below on their own will determine if the food or drink provided is meal entertainment. However, (a) and (b) are considered the more important factors.

End of attention

(a) Why is the food or drink being provided?

This is a purpose test. For example, food or drink provided for the purposes of refreshment does not generally have the character of entertainment, whereas food or drink provided in a social situation where the purpose of the function is for employees to enjoy themselves has the character of entertainment.

 

(b) What food or drink is being provided?

Morning and afternoon teas and light meals are generally not considered to be entertainment. However, as light meals become more elaborate, they take on more of the characteristics of entertainment. The reason for this is that the more elaborate a meal, the more likely it is that entertainment arises from consuming the meal.

 

(c) When is the food or drink being provided?

Food or drink provided during work time, during overtime or while an employee is travelling is less likely to be entertainment. This is because, in the majority of these cases, food provided is for a work-related purpose rather than an entertainment purpose. This, however, depends on whether the entertainment of the person is the expected outcome of the food or drink. For example, a staff social function held during work time still has the character of entertainment.

 

(d) Where is the food or drink being provided?

Food or drink provided on the employer's business premises or at the usual place of work of the employee is less likely to have the character of entertainment. However, food or drink provided in a function room, hotel, restaurant, caf , coffee shop or consumed with other forms of entertainment is more likely to have the character of entertainment. This is because the provision of food or drink is less likely to have a work-related purpose.

Further Information

If the benefit is:

  • entertainment by way of food or drink, refer to section 14.4
  • recreational entertainment, refer to section 14.10
  • not entertainment, refer to section 14.17."

The above was an extract from the ATO website please go to website directly or ring the ATO Call Centre for advice on 13 28 61.

 

DISCLAIMER
The information provided in the above document is not intended to be, nor should it be construed as tax advice. Any specific recommendation for a client can only be done after their individual circumstances have been determined by David Douglas Accountants.

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