Employee Engagement, Socialising and Business Tax Benefits
Each August I look forward to choosing a birthday cake to share with my work colleagues. Will it be a raspberry baked cheesecake? A double chocolate mousse cake? Or maybe a mango sponge? Yum! Then the day arrives and we meet together in the kitchen to sing, celebrate and share this sweet treat. It may only be a drop in the ocean of the company’s operating budget, but that cake (and the others chosen month after month by my workmates) is one of the ways our company has fostered a great culture and shown us that we’re valued. That cake, which underpins the strong employee engagement of our business, is also a deductible business expense. It truly is having your cake and eating it too!
Research shows that engaged employees produce better outcomes across industries, company size and nationality. Organising social activities and providing food are text book formulas for increasing employee engagement in the workplace. Social opportunities and celebrations with food and drink raise morale and give employees a sense of belonging that makes them more productive and innovative. Businesses that can find a healthy mixture of perks with high perceived value and ones which are deductible business expenses can keep staff happy and their company profitable.
Food and drink primarily come under two different categories as business expenses – meal entertainment and tax deductions – and it’s important to understand both so that you can use them in a way that will be most profitable to your business. It is also vital that you consult your tax agent or other financial advisor for the most up-to-date and relevant information for your business and industry.
Deductible Business Expenses
A birthday cake supplied in the workplace lands squarely in the deductible category. You can claim a deduction for the cake because it is considered a cost incurred in running your business and earning your assessable income. You can also claim morning or afternoon tea or a light meal that is provided to employees on your business premises as refreshment so they can complete the working day in comfort. These are not considered to be entertainment and are exempt from Fringe Benefits Tax (FBT).
- Coffee/tea, soft drinks, biscuits for on-going consumption at work
- Sandwiches, finger food or fresh fruit eaten during a work meeting or training session on the premises
- Light meals eaten while working overtime on the premises
- Meals and drinks during overnight business travel
- Birthday cake eaten on the premises
Any food or drink that provides entertainment will likely incur Fringe Benefits Tax (FBT). Fringe benefits are a way that employers can boost your salary without giving you more cash. This works well when the perceived value of the benefit is greater than its cost because the business still has to pay tax on it. You’re happy because you’re getting something of value to you from your employer, and they’re able to attract and retain great staff more economically.
Food and drink in a social situation is generally considered to be entertainment. This might be the work Christmas Party, or wining and dining clients, Friday drinks, special events like a Melbourne Cup Luncheon, or a team lunch at a restaurant. Any occasion that is elaborate, entertaining, or involves alcohol, is likely to be a fringe benefit. For these expenses, you will need to keep adequate records to enable your Fringe Benefit Tax (FBT) to be assessed and to take advantage of any exemptions that may apply.
- A restaurant meal (even if it is for business)
- Friday drinks after work (on or off the premises)
- Social functions like Christmas parties (on or off the premises)
- Awards night (on or off the premises)
Exemption: Businesses can provide each employee with a “minor benefit" that costs less than $300 inc GST that would be exempted from FBT liability. This could be used when planning a Christmas party if the cost per head is less than $300 and the minor benefit has not been applied elsewhere. Other exemptions may apply. Please consult your tax agent or financial advisor.
Questions To Consider
These questions and answers can assist you when you’re assessing which category your expenses fall into. These are guides only and offer the most likely outcome:
- Why is the food or drink being provided?
Social situation = entertainment
Sustenance = refreshment
- What type of food or drink is being provided?
Extravagant breakfast, lunch or dinner = entertainment
Light meal = refreshment
- When is the food or drink being provided?
Outside of work time = entertainment
During work time (including overtime or overnight travel) = refreshment
- Where is the food or drink being provided
Off-site = entertainment
On your business premises = refreshment
Relationships are built over meals and through shared experiences. A workplace that provides plenty of opportunities for staff to socialise on and off the premises can foster strong relationships that lead to better employee engagement and a healthy workplace culture. The food and drink that makes these social activities more appetising may come at a cost, but when used cleverly can give a great return on investment plus a tax break.
To enjoy meals or birthday cake on your premises, you will need to have enough plates, cups, cutlery and napkins for all attendees. This can be reusable crockery, disposable supplies, or a combination of both. Include these plus light snacks and drinks on your regular stationery order so you always have them on hand.
DISCLAIMER: This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.