Issue
If an employer incurs expenditure in providing meal entertainment to employees, but is reimbursed for that expenditure by a third party, will the amount of the original expenditure still represent 'expenses incurred' by the employer under section 37BA of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?
Decision
Yes. The amount of the employer's original expenditure represents the 'expenses incurred' by the employer under section 37BA of the FBTAA.
Facts
An employer incurs expenditure in providing meal entertainment to employees.
As part of a business agreement a third party will reimburse the employer for expenses incurred in providing meal entertainment to its employees.
The employer has made an election under section 37AA of the FBTAA that Division 9A of the FBTAA applies to the employer in respect of the current FBT year for any meal entertainment fringe benefits that may arise.
The employer has not made an election under section 37CA of the FBTAA that the '12 week register method' be used in the calculation of meal entertainment fringe benefits, therefore in accordance with section 37B of the FBTAA the 50/50 split method is to be used by the employer.
Reasons for Decision
Division 9A of the FBTAA provides that an employer can elect to determine the taxable value of 'meal entertainment' provided by an employer to employees and their associates by one of two methods. These methods are the 50/50 split method or the 12 week register method.
For the purposes of Division 9A of the FBTAA, section 37AD of the FBTAA defines the expression 'provision of meal entertainment' by reference to three circumstances: (i) the provision of entertainment by way of food or drink, or (ii) the provision of accommodation or travel in connection with or facilitating the provision of entertainment by way of food or drink, or (iii) the payment or reimbursement of expenses incurred in providing entertainment by way of food or drink or related accommodation or travel.
The employer has incurred expenditure in providing meal entertainment to its employees and as such this will constitute the provision of meal entertainment under section 37AD of the FBTAA.
The employer has made an election under section 37AA of the FBTAA that Division 9A of the FBTAA applies in respect of the current FBT year for any meal entertainment fringe benefits that may arise. The 50/50 split valuation method may be used by the employer, to determine the FBT liability for meal entertainment fringe benefits. Under the 50/50 split method the taxable value of meal entertainment fringe benefits provided by the employer is one-half of the total expenditure incurred by the employer on the provision of meal entertainment.
Section 37AB of the FBTAA ensures that any reference to expenses or expenditure incurred by the employer will be reduced by any contributions from an employee or an associate of an employee that is not subject to reimbursement by the employer. It does not allow for contributions from a third party. If an employee makes a contribution towards the cost of meal entertainment then the value of any benefit received by them is reduced. However, if a contribution is made by a third party the value of the benefit received by the employee is not reduced. The arrangement between the employer and the third party is unrelated to the benefit provided to the employee.
Accordingly, it is the amount of the expenditure incurred by the employer that is used to calculate the taxable value of meal entertainment fringe benefits for the 50/50 split method under section 37BA of the FBTAA. An arrangement whereby a third party reimburses an employer for expenses incurred in providing meal entertainment to its employees will not alter this outcome.
Amendment History
Date of Amendment Part Comment 13 March 2026 Business line Updated to correct business line
Date of Amendment | Part | Comment
13 March 2026 | Business line | Updated to correct business line