Type of Meal entertainment expenses
The following summary is only as a general guide whether the food and drink has the character of meal entertainment in each situation.
- Birthday cake consumed on business premises
- Food and drink consumed at a café or restaurant while working overtime
- A business lunch at café or restaurant
- Friday night drinks at the office
- Food and drink consumed at a social function held on or off the business premises
Eg. Christmas party, year end party and cocktail party
Meal entertainment valuation methods
Actual entertainment expenditure method
FBT is only payable on the portion of meal entertainment expenditure related to employees and their associates. Therefore FBT is basically not payable on meal entertainment provided to non-employees.
Income tax deduction and GST input tax credit consequences
Under the actual method, an income tax deduction is generally allowed on that portion of meal entertainment expenditure that is subject to FBT (i.e. any portion related to employees and associates).
Furthermore, GST input tax credit can only be claimed on that portion of meal entertainment expenditure related to employees and associates, and not for non-employees.
Advantage for using the actual method
The minor benefit exemption applies where the GST-inclusive cost of food and drink is less than $300 per employee.
FBT record keeping requirements
Employees are required to keep detailed records in order to split each item of meal entertainment expenditure between employees and non-employees.
The 50/50 split method
Under 50/50 split method, FBT is only payable on 50% of the employer's total meal entertainment expenditure for the FBT year.
Income tax consequence under 50/50 method
Under the 50/50 split method, only 50% of an employer's total meal entertainment expenditure is:
- Deductible (excluding any GST input tax credit entertainment); and
- Eligible for GST input tax credits (for any GST paid)
irrespective of who is being entertained (i.e. employees, associates, clients, contractors, etc.).