Page Contents

What is entertainment?
Entertainment scenarios
Treatment of entertainment
Entertainment & GST
Further Information

Entertainment

Entertainment is a complex and often misunderstood area for churches. The interaction of GST and Fringe Benefits Tax (FBT) leads to a confusing array of outcomes for situations that ostensibly appear the same or very similar. Because of this it is an area that needs to be treated cautiously.

What is entertainment?

Section 32-10 of the Income Tax Assessment Act 1997 defines entertainment as follows:

• Entertainment by way of food, drink or recreation or
• Accommodation or travel to do with providing entertainment by way of food, drink or recreation.

Entertainment takes on its ordinary meaning which includes “something affording diversion or amusement”. It excludes the provision of items such as bottles of wine, groceries, TV/DVD players, computers and retail gift cards.

It should also be noted that, from the above definition there are two types of entertainment:

1. Recreation
2. Meal Entertainment

Recreation

This category of entertainment is inclusive of everything but entertainment by way of food or drink. This includes any form of amusement, sport or leisure-time pursuit.

Meal Entertainment

Meal entertainment incorporates the “by way of food or drink” part of the definition. For each transaction the following framework is used in determining whether the food/drink is meal entertainment:

Factors	More Likely	Less Likely
Why the food/drink is being provided	Social situation	Refreshment or sustenance
What type of food/drink is being provided	Lunches/dinners	Light meals/snacks
When the food/drink is being provided	Outside of work time	Work time (or overtime) / overnight travel
Where the food/drink is being provided	Not on business premises	On business premises

Entertainment Scenarios

The following table provides a comprehensive list of scenarios and whether or not they constitute entertainment. The list is not exhaustive and ultimately you should apply the factors above to each situation.

Scenarios	Meal Entertainment	Recreation Entertainment	Not Entertainment
Light morning/afternoon tea concluding church services			X
Tea/coffee, biscuits, light snacks, etc provided for employees			X
Pastoral catch up at a cafe or restaurant where a meal is consumed	X
Pastoral catch up at a cafe or restaurant where only coffee/tea and cake is consumed			X
Food and drink consumed at a social function held on the church premises	X
End of year ministry team break up celebration held at a restaurant	X
Groceries purchased by a religious practitioner as part of their exempt fringe benefits			X
Dinner at restaurant or fast food outlet purchased by a religious practitioner as part of their exempt fringe benefits	X
Cinema/sporting tickets purchased by a religious practitioner as part of their exempt fringe benefits		X
Holiday accommodation purchased by a religious practitioner as part of their exempt fringe benefits		X
Airfares to a holiday destination purchased by a religious practitioner as part of their exempt fringe benefits		X
Groceries purchased by a religious practitioner as part of their exempt fringe benefits while on holiday			X
Youth event held with entertainment available such as live music, activities, etc		X
Similar youth event to above where a price is charged for admission		X (1)
Christmas/Easter event held with entertainment available		X
Flowers or other non-entertainment gifts (e.g. pen set, perfume, etc)			X

(1) GST can be claimed on this entertainment as GST is being charged on the price of admission.

Treatment of Entertainment

Once you have determined that a transaction is entertainment, you then have to determine its treatment for FBT and GST purposes. The correct process is to first consider the FBT consequences which will then lead to determining the treatment of the transaction for GST purposes.

Fringe Benefits Tax

Once you have identified that a transaction is entertainment, it will generally be subject to FBT unless an exemption applies.

Property benefits exemption

Ordinarily, this exemption allows for entertainment provided on an employer’s property to be exempted from FBT. However, tax exempt organisations are unable to apply this exemption.

Minor benefits exemption

There is an exemption for most benefits of ‘less than $300’ which are provided to employees irregularly, however, this is generally not available to entities that are exempt from income tax in respect to entertainment.

It is common for churches to misunderstand the minor benefits exemption and claim this exemption for non-religious practitioner staff within a church for entertainment. A church, being a tax-exempt body, is not allowed to claim minor benefits exemption for entertainment except in limited circumstances. The only circumstances where a church can apply the minor benefits exemption are:

1. Where the provision of entertainment to the employees is incidental to the provision of entertainment to non-employees and the entertainment is not a meal (unless the meal consists of light refreshments only). Example: a church event with live music and light refreshments where the church community is invited to attend; or
2. Where the provision of entertainment is on the premises of the church and is solely as a means of recognising a special (work related) achievement of an employee. Example: a lunch/dinner to celebrate 10 years of service for an employee.

Therefore, your church will generally not be able to access this exemption for entertainment provided to non-religious practitioner staff.

Religious Practitioners exemption

All entertainment benefits provided to religious practitioners are FBT exempt under the general provision that applies to benefits provided to religious practitioners.

Valuation of entertainment

If meal entertainment is subject to FBT, you then have to determine which method you will choose to adopt to value the benefits provided during the fringe benefits tax year. There are two methods available:

• The 50/50 split method; or
• The actual method.

The choice of method will impact on the GST implications of the meal entertainment transaction.

Please note that most churches will be rebatable employers for FBT and so will be able to apply a 47% rebate to the gross FBT payable, subject to a $30,000 capping threshold for the 2018 FBT year and onwards.

Entertainment & GST

Generally, if an entertainment transaction is subject to FBT, GST can be claimed. However, the reverse also applies. If an entertainment transaction is not subject to FBT, GST cannot be claimed. Therefore, you should not claim GST on entertainment provided to religious practitioners.

We would recommend setting up your chart of accounts and default GST tax rates to make it easy to identify the different categories of entertainment such as:

• Meal entertainment – subject to FBT;
• Meal entertainment – not subject to FBT;
• Recreation entertainment – subject to FBT;
• Recreation entertainment – not subject to FBT.

Further Information

As is apparent from the information in this section of the guide, entertainment, its relationship with FBT and GST is an extremely complex area.

We recommend contacting us for assistance with specific entertainment queries.