2024 FBT series: Meal entertainment

19 April 2024

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With the impact of COVID-19 now largely behind us and the provision of entertainment fringe benefits returning to pre-COVID levels for many employers, it is increasingly important that employers are particularly mindful that additional scrutiny may be required as part of the preparation of the 2024 Fringe Benefits Tax (FBT) return to ensure that all entertainment (particularly meal entertainment) is identified and appropriately classified within their FBT workpapers.

General implications for Employers

Determining whether the provision of food or drink constitutes meal entertainment requires consideration of the criteria set out within Taxation Ruling TR 97/17. In particular, in making this assessment, consideration must be given to the circumstances surrounding the provision of food and drink, including:

Why the food or drink is being provided;
What type of food or drink is being provided;
When that food or drink is being provided; and
Where the food or drink is being provided.

For FBT purposes, where meal entertainment has been provided, employers can elect to adopt the ‘actual’ method, the 50/50 method or the 12-week register method.

Where the provision of food or drinks does not constitute meal entertainment, a fringe benefit may still arise (for example, sustenance constituting a property or expense benefit).

Employers may consider concessions such as the minor benefit exemption or the ‘on premises’ exemption (unless the 50/50 method is adopted for meal entertainment expenditure). There is also the application of the otherwise deductible rule to reduce the taxable value of sustenance or entertainment where, had the employee incurred the expense personally, they would have received an income tax deduction. Again, this FBT concession would not be available where a benefit amounts to entertainment and where the employer has elected to use the 50/50 method to value all meal entertainment.

Post-COVID impacts on FBT for meal entertainment?

While many employers had revised their approach to calculating the taxable value of meal entertainment fringe benefits from the 50/50 split method to the actual method during the COVID-impacted FBT years due to a significant drop in the volume of meal entertainment transactions and the relevance of the minor benefits exemption, in the post-COVID era, this trend has been reversed for many employers. More recently, in the face of employee hesitation to return to the office, one practice adopted by some employers to incentivise employees to return has been to increase the provision of meal entertainment benefits for those employees (such as staff lunches, functions and office drinks, etc.). In this context, it is recommended that employers comprehensively review their meal entertainment fringe benefits for the 2024 FBT year to ensure that these types of benefits are appropriately identified, calculated and disclosed.

For many employers, the increase in the volume of meal entertainment benefits provided presents significant challenges in both analysing the relevant data and identifying the individual recipients of all meal entertainment benefits during the FBT year. Where employers are not in a position to undertake this analysis in an efficient manner (or the requisite level of supporting records have not been maintained throughout the year), this may result in employers finding themselves in a position where their only feasible option is to use the 50/50 method to value meal entertainment, which for many employers could result in higher than necessary FBT costs compared to the actual method.

With improvements in technology, it is recommended that employers consider whether there is an opportunity to incorporate technology into their internal processes to support the review and characterisation of meal entertainment expenditure to better manage their FBT liabilities on the provision of these benefits. For more information on how PwC is able to support employers in this area, please refer to our Workforce Automate website.

If you have any questions about your FBT obligations, please reach out to your PwC specialist.