Entertainment-related benefits are common fringe benefits, but they can create complex compliance challenges for employers. A key issue is determining whether an expense qualifies as meal entertainment or non-entertainment, as this classification impacts FBT, income tax deductibility, and GST treatment.
Typical meal entertainment includes business lunches and social functions (like Christmas parties), while light refreshments during meetings are generally not classified as meal entertainment. Here are some examples:
Tea/ coffee provided for on-going consumpution in the office for employees and visitors.
Pastries, muffins, sandwiches, fruit and/or orange juice consumed during a working meeting/training session
A light meal and drink consumed while working overtime in the office
Only expenses that are considered meal entertainment and are subject to FBT are usually tax deductible and eligible for GST credits. In contrast, non-entertainment food and drink expenses are generally deductible regardless of FBT.
Correct classification is essential to ensure compliance and to manage tax obligations effectively.
Recognising entertainment by employers
For FBT, entertainment basically means giving someone food, drinks, or recreation — or covering their accommodation or travel linked to that. The ATO always looks at things like what’s being provided, when and where it happens, why it’s happening, and whether there’s a social or fun element involved.
Recognising meal entertainment
Under s.37AD, an employer is giving meal entertainment for FBT if they provide, pay for, or reimburse costs for:
Food or drinks, or
Accommodation or travel linked to providing that food or drink.
And just because it’s part of a work meeting, business deal, work duties, or even a marketing event doesn’t mean it stops being meal entertainment — it can still count for FBT.
Ways to work out the value of meal entertainment
Once it’s clear an employer is giving meal entertainment, they have to work out its FBT value using one of three methods:
Actual method (default) – work out the exact taxable amount based on actual spending
50/50 split method – treat half of the total spend as taxable.
12-week register method – keep detailed records for 12 weeks to work out the taxable portion.
If an employer doesn’t choose one of the last two, the actual method automatically applies. Most employers stick to the actual method or the 50/50 split because the 12-week register method is a hassle with all the extra paperwork.
Please contact us directly if you need any help with this.
(Source: Information extract from The NTAA's 2025 FBT Seminar notes)