Generally expenditure on entertainment is not tax deductible. This includes expenditure entertaining clients, business lunches, social functions, Christmas parties, etc.
As an exception to this, entertainment will be deductible where it is provided as a fringe benefit to an employee or associate and the employer pays fringe benefits tax on the benefit. As the FBT rate is 46.5% versus 30% for the company tax rate, this is generally not tax efficient.
Deductible entertainment expenses are tax effective to the employer as they receive a tax deduction for the expenditure, a refund of the GST input tax credits, and pay no fringe benefits tax. Employees also benefit as they receive a tax free benefit.
The following will generally be deductible entertainment:
- Food or drink provided to employees for overtime meals.
- Gifts which are relatively inexpensive and which will be consumed by the employee or client at home (e.g. bottle of wine, hamper). Inexpensive gifts means gifts costing less than $100 each.
- Meals for employees provided on a working day in an ‘in-house dining facility’.
- Meals, accommodation or travel cost incurred for an employee on a business trip.
- Meals at seminars provided the seminar runs for at least four hours and is not merely a general business discussion.
- Advertising and promotional entertainment expenses or public access promotions.