GST Q&A: Are input tax credits available on meal entertainment expenses?
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Is an input tax credit available for the following FBT-related expenditure?
– Food or drink that does not amount to meal entertainment, but is an exempt property benefit as it was consumed by an employee, on a work premises and on a work day.
– Expense payments or property benefits (in the form of employee gifts) that exempt under the minor benefit exemption.
GST credits are usually available to an employer provided the acquisition is made in the course of carrying on the enterprise and does not relate to making input taxed supplies. However, there are special rules in the GST law that alters this where entertainment expenses are involved. In such cases, the income tax deductibility is relevant and this may depend on the FBT treatment of the expense.
NOTE: When applying these GST rules the income tax exempt status of employers is ignored and instead the rule is applied assuming the employer was not income tax exempt.
There are some further potential complications due to there being slightly different FBT rules regarding the application of exempt benefits depending on whether the employer is a tax-exempt or not-for-profit employer as compared to a non-income tax exempt employer.
Broadly, if the benefit is entertainment (including meal entertainment) then the general rules are:
- If subject to FBT = deductible = GST credit available.
- If NOT subject to FBT (e.g. exempt benefit) = non-deductible = NO GST credit available.
If the expense does not amount to entertainment, then a GST credit is generally available irrespective of whether the benefit is subject to FBT or exempt.
Therefore, entertainment for employees is generally treated as:
- FBT/deductible/GST credit available.
Entertainment for clients is generally treated as:
- No FBT/non-deductible/No GST credits.
With regard to the second part of the question, relating to expense payment benefits and property benefits that are in the form of employee gifts, on the assumption that the benefits referred to are not entertainment, GST credits would be available.
Disclaimer: Information provided in this article, while correct at time of publishing, is subject to change.