In Australia’s business landscape, it is a common practice to take clients, both existing and potential, out for meals in order to strengthen the business relationship.
Often, one party covers the cost of these meals. Similarly, business owners frequently reward high-performing employees by treating them to lunch and covering their expenses.
Given that these meals are genuine business expenses, one might wonder if it is possible to claim back the Goods and Services Tax (GST) and receive a tax deduction.
However, in the situation described above, it falls under the category of “Meal Entertainment.”
Unless the business owner is willing to pay the appropriate amount of fringe benefits tax (FBT), no deduction is allowed, and the GST cannot be claimed.
The ATO’s argument is that food and drink are sustenance for our body and therefore not business related and are of a private nature.
Meal entertainment encompasses the following activities:
- Providing entertainment in the form of food or drink.
- Providing accommodation or travel that is related to or facilitates the provision of such entertainment.
- Paying or reimbursing expenses incurred by the employee for the aforementioned activities.
With this in mind, some common examples of meal entertainment include:
- Taking your employees out for coffee or lunch.
- Meeting clients at a café or restaurant for a meal or a drink.
- Organizing social functions, such as Christmas parties, where food or drink is provided.
- Organising sport, leisure and amusement activities, which also covers movie tickets, joy flights, golf games and gym memberships.
Exemptions – Minor and Infrequent
Certain exemptions are available that can reduce the taxable value of meal entertainment benefits to zero. However, in such cases, it is important to note that no tax deduction can be claimed, and the Goods and Services Tax (GST) cannot be claimed either.
The most commonly used exemption is the minor and infrequent exemption, which specifies the following conditions:
- The cost of the benefit is below $300 per person.
- The benefit is provided infrequently.
Both of these conditions must be met for the meal entertainment benefit to be exempt. For instance, if an employee is taken out to lunch as a reward for high performance, it would qualify for exemption since it is an infrequent occurrence and the cost is below $300.
On the other hand, if taking employees out to lunch becomes a regular weekly practice and the employer covers the cost, it no longer satisfies the infrequent condition mentioned above. In such cases, the benefits are subject to fringe benefits tax (FBT), even if the cost per person remains below $300.
Refer: Common entertainment scenarios for business (https://www.ato.gov.au/Business/Fringe-benefits-tax/Types-of-fringe-benefits/Entertainment-related-fringe-benefits/common-entertainment-scenarios-for-business/#:~:text=Christmas%20parties%20and%20gifts,-If%20your%20business&text=off%20your%20business%20premises%2C%20or,it%20as%20a%20fringe%20benefit)
