As an employer, you will, from time to time, provide your employees with food and drink, gifts, and possibly leisure activities. This may happen in a variety of circumstances and for a number of different employees and their associates.
When we talk about you providing entertainment we mean:
providing entertainment by way of food, drink or recreation
providing accommodation or travel in connection with such entertainment, or
paying or reimbursing expenses incurred in obtaining something covered by the above points.
Some examples of providing entertainment are:
staff social functions such as parties
celebrations for achieving sales targets
business lunches with clients
product release functions
sporting club memberships
reward and recognition functions.
If you sometimes provide these events for your staff you will need to know whether the events will be classified as entertainment and require you to pay fringe benefits tax (FBT).
Steps to providing food and drink or recreation to employees
1. Determine whether the food, drink or recreation is entertainment.
2. Consider if an exemption applies
3. Decide if you can reduce your FBT payable on the food, drink or recreation
4. Keep the appropriate records
5. Calculate your FBT liability
6. If required, report an amount on the employee's payment summary
Step 1 – When food, drink or recreation is entertainment
Food or drink
To determine whether food or drink provided to a person is entertainment, you need to look at the following factors. None of the factors on their own will determine if the food and drink provided is entertainment, but the first two questions for consideration are the more important factors.
Why are you providing the food or drink for employees?
Providing refreshments to enable the employee to complete the working day in comfort is not generally entertainment.
Providing food or drink in a social situation where the purpose of the function is for employees to enjoy themselves is likely to be entertainment.
What type of food or drink is being provided?
The more elaborate a meal, the more likely it becomes that entertainment arises from eating the meal.
When is the food or drink being provided?
Food or drink provided during work time, during overtime or while an employee is traveling for work is less likely to be entertainment. This is because in the majority of these cases, the food or drink is provided for a work-related purpose rather than for an entertainment purpose.
Where is the food or drink being provided?
Food or drink provided on your business premises or at the employee's usual workplace is less likely to be entertainment.
Food or drink provided off your business premises, such as at a function room, hotel, restaurant or consumed with other forms of entertainment, is more likely to be entertainment.
Example: Determining whether food or drink is entertainment
Gabrielle is currently employed by Twinsprings Pty Ltd and will soon be leaving the company for an overseas position in Canada.
In recognition of Gabrielle's loyalty and dedication to the company over the last six years her employer, Paul, wants to host a late afternoon farewell function at a local hotel.
Drinks including alcohol and light refreshments such as finger foods will be provided to invited staff, clients and Gabrielle's family members. Paul has hired a mini bus to transport guests to the venue.
Why – the food and drink in this situation is being provided for a social situation where the purpose of the function is for employees, associates and clients to enjoy themselves.
What – light refreshments are often not considered to be entertainment however as alcohol will be provided in this situation it is considered to have a social context.
When – although in this instance food or drink will be provided during working hours it has the character of entertainment as it a social function.
Where – the food or drink is being provided in a private function room at the local hotel. Food or drink provided in a function room, hotel, restaurant or coffee shop is more likely to be entertainment.
Decision – looking at the answers to these questions, providing the farewell function for Gabrielle as outlined above would be classified as entertainment.
End of example
When recreation is entertainment
Recreation that is entertainment includes amusement, sport and similar leisure time activities, for example:
a game of golf
a gym membership
memberships to sporting clubs
theatre or movie tickets
a joy flight or a harbour cruise
accommodation and travel in connection with entertaining clients and/or employees over a weekend at a tourist resort.