Salary packaging and staff meals for club employees

Many clubs provide food and drink to their employees on premises, either free of charge or at a discount to the price which members pay.

However, not all clubs, and not all food and drink, are treated the same for tax.

The tax treatment for the club for free or discounted food and drink provided on premises depends on the answer to two questions:

  1. Is the food and drink ‘meal entertainment’?
  2. Is the club exempt from income tax (tax exempt body)?

Meal entertainment

When determining if food and drink is meal entertainment, the following questions should be considered:

  1. Why is the food and drink being provided?
  2. What food or drink is being provided?
  3. When is the food and drink being provided?
  4. Where is the food and drink being provided?

Food and non-alcoholic drinks provided to an employee at morning or afternoon tea, or while on a meal break, is unlikely to be meal entertainment.  Conversely, extravagant food and alcohol provided to an employee at a Christmas party is likely to be meal entertainment.

Food and drink which is not meal entertainment is exempt from Fringe Benefits Tax (FBT) where it is consumed by the employee on the employer’s business premises, This applies to employers who are taxable and income tax exempt. It also applies regardless of whether the actual or 50/50 method is used to value meal entertainment for FBT.

Food and drink which is meal entertainment, and which is provided by a taxable employer and consumed by the employee on the employer’s business premises, is exempt from FBT only if the employer uses the actual method to value meal entertainment for FBT. If the employer uses the 50/50 method to value meal entertainment for FBT, this includes all meal entertainment consumed on premises. Employers will need to balance the administrative ease of using the 50/50 method against the potential tax savings from using the actual method to value meal entertainment.

Tax exempt body

Food and drink which is meal entertainment, and which is provided by a tax-exempt body, is subject to FBT.

Salary packaging meal entertainment expenditure

Clubs which are a tax-exempt body can take advantage of an FBT concession which allow employees to salary package benefits up to a cap of $30,000.

A lesser-known fact is that meal entertainment does not count towards this cap of $30,000 and is subject to its owned separate cap of $5,000.

Employers can allow employees to salary package additional meal entertainment up to this specific cap, which would have the advantage of increasing the employee’s take home pay without increasing the cost to the company.

Whilst packaging of individual meal entertainment expenses is likely to create additional unwelcome administration, a policy could be implemented to allow employees to salary package larger functions booked at the club, which would have the advantage for employees of using pre-tax income to pay for the function.