Meals, Gifts & Entertainment [Factsheet]
Updated: 25/11/2021
Article #: 105
Over the course of the year, most businesses purchase or reimburse the cost of meals and gifts to both their clients and employees. From an accounting and record-keeping point of view, it is important to make the correct Income Tax and GST determination for these transactions and consider possible FBT implications when making these purchases for employees.
This Fact Sheet aims to help businesses that are not registered for FBT to correctly record meals, gifts and entertainment expenses and avoid FBT implications.
Definitions | Types of Purchases | |
| Light Refreshments | The provision of food and drinks provided on-site, during working hours which enable the employees to complete their working day with comfort. It includes tea, coffee, cakes, sandwiches, finger food, soft drinks and occasionally, alcohol. | |
| Entertainment | The provision of entertainment by way of food, drink or recreation as well as accommodation or travel in connection with such entertainment. Payment or reimbursement of expenses incurred in obtaining entertainment. (ATO Tax Assessment Act 1997) | |
| Recreation | The provision of amusement, sport or similar leisure activity provided on or by means of a vehicle, ship, vessel or aircraft. | |
| Gifts | Items purchased for special occasions, including holidays (Eg. Christmas), birthdays, anniversaries and occasionally, rewards. | |
Definitions | Recipients | |
| Client | A person or an organisation that receives a service from your business in return for a payment. | |
| Supplier | A person or an organisation that provides a service to your business in return for a payment. This also includes contractors. | |
| Employee | A person who receives or has received in the past, a salary or wage from your organisation. | |
| Associate | A relative of an employee, including their spouse/partner, children or parents. | |
| Tax Treatment | Determination of the Type of Purchase > Food and Drink |
| The Tax Office has released the Taxation Ruling TR 97/17 to assist taxpayers in determining whether the provision of meals or gifts has the character of entertainment. | |
| Why | the food or drink is being provided? Providing refreshments to enable the employee to complete the working day in comfort is not likely to be 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 has been provided? The more elaborate a meal, the more likely is to be entertainment. |
| When | is the food or drink being provided? Providing food or drink during work time, overtime or while an employee is travelling for work is not likely to be entertainment. Providing food or drink outside working hours such as at a social function, is likely to be entertainment. |
| Where | is the food or drink being provided? Providing food or drink on business premises or at the employee's usual workplace is not likely to be entertainment. Providing food or drink off business premises, such as at a function room, hotel, restaurant or consumed with other forms of entertainment, is likely to be entertainment |
Tax Treatment | Determination of the Type of Purchase > Gifts |
| The ATO identifies two types of gifts: | |
| Entertainment Gifts | Event tickets, restaurant meals, airline tickets |
| Non-Entertainment Gifts | Hampers, bottles of wine or other liquors, perfume, flowers, stationery sets etc |
Tax Treatment | FBT Implications |
| The provision of both entertainment and gifts to employees and their associates may attract Fringe Benefits Tax. As previously noted, this User Guide has been designed for those businesses which are not registered for FBT nor wish to report on FBT. The minor benefit exemptionUnder this exemption, a gift provided to an employee is not subject to FBT where the following conditions are met:
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| Record Keeping | Accounts | ||
| Whether the cost of the meals is Tax/GST claimable or not, these expenses should still be reported in the company P&L. It is also beneficial to distinguish the recipients of these purchases. The following table provides examples of the typical expense accounts used to identify the different types of meals, gifts and entertainment expenses. | |||
| Employees | Clients | ||
| Account Name | Tax Code | Account Name | Tax Code |
| Refreshments | GST | Refreshments | GST |
| Entertainment | BAS Excluded (N-T) | Entertainment | BAS Excluded (N-T) |
| Gifts | GST | Gifts | GST |
| Travel - Meals | GST (Domestic) FRE (International) | ||
| Facilities - Amenities | GST FRE(Unprocessed food) | ||
| Record Keeping | Recording Transactions | ||
| These transactions can be recorded either as Purchases or Spend Money. It is recommended to provide details for each transaction, particularly for staff entertainment (including the number of people attending the event and the event location). As meals and entertainment are still considered business costs, copies of Receipt/Tax Invoices must be provided, even when the expense is not claimable. | |||
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