As the festive season approaches, many businesses celebrate with client lunches, team dinners, and end-of-year parties. But before you raise a glass, it’s worth understanding how these events are treated for tax purposes.

FBT and Meal Entertainment: What Counts?

Meal entertainment includes:

• Taking staff or clients out for a meal.
• Hosting social functions like Christmas parties.
• Providing food and drink that goes beyond simple sustenance.

If FBT (Fringe Benefits Tax) is paid, the cost of the meal is tax deductible and GST can be claimed. But if no FBT is paid, neither the deduction nor the GST credit is allowed.

Valuation and Consequences

Using the actual method, a $1,500 Christmas party could result in an FBT expense of $1,466.54. The gross-up rate and FBT rate significantly impact the final cost.

Sustenance vs Entertainment

Not all food is entertainment. Morning teas, meals during training, or meals while travelling are considered sustenance — not subject to FBT and fully deductible.

Exemptions to Know

• Minor & Infrequent: If the meal costs less than $300 per person and isn’t a regular event, it may be exempt from FBT.
• In-House Meals: Simple meals at the office are generally exempt, but if alcohol or multiple courses are involved, they may become entertainment.

Final Tip

The line between sustenance and entertainment can be blurry. If you’re unsure whether your festive plans are deductible or taxable, check out our FBT Fact Sheet to learn more.