We run a number of one or two day structured training courses for new recruits and existing staff wishing to update their working knowledge. At the end of the day’s training, the group will go out for a meal at a restaurant as part of team building. Is this classed as entertainment or is this classed as sustenance at the conclusion of training of more than 4 hours duration?
A good starting place is paragraph 7 of Taxation Ruling TR 97/17. With some explanatory comments added, it states:
‘In order to determine when the provision of food or drink to a recipient results in the entertainment of that person, an objective analysis of all the circumstances surrounding the provision of the food or drink is required. In making this determination an employer should consider:
- why the food or drink is being provided [… – Food or drink provided for the purposes of refreshment does not generally have the character of entertainment, whereas food or drink provided in a social situation where the purpose of the function is for employees to enjoy themselves has the character of entertainment.];
- what type of food or drink is being provided [… – Light meals are generally not considered to constitute entertainment, however, as light meals become more elaborate, they take on more of the characteristics of entertainment. The reason for this is that the more elaborate the meal, the greater the likelihood that entertainment arises from the consumption of the meal.];
- when that food or drink is being provided […– Food or drink provided during work time, during overtime or while an employee is travelling is less likely to have the character of entertainment.]; and
- where the food or drink is being provided [… – Food or drink provided on the employer’s business premises or at the usual place of work of the employee is less likely to have the character of entertainment. However, food or drink provided in a function room, hotel, restaurant, cafe, coffee shop or consumed with other forms of entertainment is more likely to have the character of entertainment.]’
Given the length of training and the clear work requirement to attend such training, there are strong arguments for a ‘sustenance’ conclusion based on the ‘why’ and ‘when’ factors. However, as the meals are consumed at restaurants and presumably consist of a sit down meal (with alcohol?), the ‘what’ and ‘where’ factors work against the ‘sustenance’ conclusion.
During the training sessions it is presumed staff are provided with morning tea and a light lunch, which is not uncommon for an all-day training session. At the end of a working day, including a training day, an employee would typically go home to eat dinner and so remaining after the working day to attend a restaurant and consume a sit down meal is likely to not be viewed as sustenance by the ATO.
Of course, this conclusion would differ for those staff that have had to travel from considerable distance and who are required to stay overnight. In this case, the meal expenditure would be considered ‘otherwise deductible’ sustenance.
Entertainment seminar exemption
If you are not using the 50/50 method to calculate your meal entertainment fringe benefits, the seminar exemption may apply to exclude the meal costs from the FBT net. For this purpose a seminar includes a conference, convention, lecture, meeting (including a meeting for the presentation of awards), speech, “question and answer session”, training session or educational course that goes for at least 4 hours duration excluding breaks. However, a seminar does not include a ‘business meeting’.
A seminar is a business meeting if its main purpose is for individuals who are (or will be) associated with the carrying on of a particular business to give or receive information, or discuss matters, relating to the business.
However, the seminar is not a business meeting if it:
(a) is organised by (or on behalf of) an employer solely for either or both of these purposes:
(i) training the employer and the employer’s employees (or just those employees) in matters relevant to the employer’s business (or prospective business);
(ii) enabling the employer and the employer’s employees (or just those employees) to discuss general policy issues relevant to the internal management of the employer’s business;
(b) is conducted on property that is occupied by a person (other than the employer) whose business includes organising seminars or making property available for conducting seminars.
Given the above, our preliminary view can be summarised as follows:
- the restaurant meals constitute meal entertainment;
- if the training session is held on your business premises the seminar exemption will not be available; and
- if the training sessions are held offsite, the seminar exemption will be available
The restaurant meals constitute ‘otherwise deductible’ sustenance.
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