GST credits, FBT & Income Tax: the do’s and don’ts this festive season

It is always timely, in the lead-up to the festive season, for a reminder on what GST credits are available for entertainment expenditure.

When it comes to entertainment expenditure, particularly entertainment by way of food or drink (‘meal entertainment’), there is a need to consider how the income tax, FBT and GST laws interact. To determine the extent to which a GST credit may be available, an entity would typically need to consider:

• whether the amount is subject to FBT (or not); and
• whether the amount is available as a deduction for income tax purposes (or would be if entities were subject to income tax).

General

Generally, the interaction of the GST, FBT and income tax laws result in the application of the rules as summarised below:

Entertainment expenditure incurred in relation to employees – this is the general rule:

• subject to FBT;
• income tax deductible; and
• GST credit available.

Entertainment expenditure incurred in relation to non-employees (i.e., customers, clients, etc.) – this is the general rule:

• NOT subject to FBT;
• NO income tax deduction; and
• NO GST credit available.

50/50 or 12-week register methods

Employers can make an FBT election to apply the 50/50 or 12-week register method for meal entertainment expenditure. Where this is the case, the amount of meal entertainment expenditure that is subject to FBT is based on the method chosen. For example, if the 50/50 method is chosen, then 50% of the meal entertainment expenditure is subject to FBT and accordingly this 50% will be income tax deductible. It then follows that there will be an entitlement to claim 50% of the GST credits.

Charitable Organisations

For certain charitable organisations (including public benevolent institutions, public hospitals, public ambulance entities, etc.) non-salary sacrifice meal entertainment expenditure that is an exempt benefit because of section 57A of the FBT law, as well as entertainment expenditure that relates to non-employees, will have the following treatment:

• the amount is an exempt benefit under FBT rules;
• the amount will be non-deductible for income tax purposes; and
• no GST credit entitlement arises.

While the GST, FBT and income tax rules for the above appears to interact with a semblance of consistency, we caution care should be taken as this may not always be the case.

For example, in limited circumstances the minor benefit exemption may be available for meal entertainment in which case the benefit becomes an exempt benefit and, as such, no ITC’s would be available.  Salary sacrificed meal entertainment for a section 57A employer also poses some challenges as, up to the capping levels, benefits are exempt but subject to FBT (with GST credits available) to the extent the caps are exceeded.

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This article provides a general summary of the subject covered as at the date it is published. It cannot be relied upon in relation to any specific instance. TaxEd Pty Ltd and any person connected with its production disclaim any liability in connection with any use. It is not intended to be, nor should it be relied upon as, a substitute for professional advice.