Understanding Fringe Benefits Tax (FBT): Why Good Record-Keeping Matters

If you run a business or manage finances in Australia, you’ve probably heard the term Fringe Benefits Tax (FBT) tossed around. But what is it, really? And more importantly, how can recording entertainment expenses throughout the year save you money, time, and stress?

Let’s break it down.

What Is Fringe Benefits Tax (FBT)?

FBT is a tax that employers pay on certain benefits they provide to their employees, their employees’ families, or other associates. It’s separate from income tax and is calculated on the taxable value of the fringe benefits provided.

Examples of fringe benefits include:

• Free or discounted use of a car for private purposes
• Meal and entertainment expenses (e.g., taking staff or clients out for dinner)
• Tickets to concerts, events, or other forms of recreation
• Gifts and other non-cash incentives

While some benefits are exempt or have concessions, many – especially entertainment expenses – are caught under FBT rules.

Why Entertainment Expenses Are Tricky

Entertainment expenses are one of the most confusing areas of FBT. That’s because they’re often partly deductible, sometimes exempt, and occasionally fully taxable. Determining what portion is subject to FBT depends on factors such as:

• Who the benefit was provided to (employee, associate, client, etc.)
• The purpose of the entertainment
• Where and when it occurred

Without proper documentation, it’s difficult – if not impossible – to claim exemptions or reduce your FBT liability.

The Real Cost of Poor Record-Keeping

Imagine this: It’s FBT reporting time, and you’re trying to remember every dinner, drinks session, and staff lunch from the past year. You don’t recall who attended, what was discussed, or how much was spent.

That lack of detail could mean you end up:

• Paying more tax than necessary
• Losing access to exemptions
• Spending hours hunting through receipts

ATO guidelines require substantiation for any claim or exemption. Vague descriptions like “business lunch” won’t cut it.

The Smart Habit: Record as You Go

The best way to avoid FBT headaches is to record entertainment expenses as they happen. By capturing the details at the time of the event, you ensure accuracy and reduce end-of-year stress. Here’s what you should be recording:

• Date of the expense
• Nature of the event (e.g., staff lunch, client dinner)
• Names of attendees and whether they are staff, clients, or associates
• Purpose of the entertainment
• Amount spent and method of payment

Download Our Free Entertainment Expenses Tracking Template

To make life easier, we’ve created a simple Entertainment Expenses Tracking Template. It’s designed for everyday use and helps you:

• Keep clear, ATO-compliant records
• Separate employee vs client expenses
• Identify exempt or deductible items
• Stay prepared for FBT season

Here’s what it helps you record:

• Date: When the event or function occurred
• Description of Function: What the event was (e.g., “Staff Christmas Lunch” or “Client Dinner with ABC Pty Ltd”)
• No. Employees Attended: Total number of staff present
• No. Clients Attended: Total number of clients or associates present
• Cost of Function (excl. GST): Total cost of the event, before GST
• Cost per Head: Automatically calculated – helps determine if minor benefit exemptions apply

Tip: Complete the form as close to the date of the event as possible. Don’t rely on memory – the ATO won’t.

DOWNLOAD THE TEMPLATE HERE

Final Thoughts

Fringe Benefits Tax doesn’t have to be confusing or costly. With a bit of awareness and proactive record-keeping, especially for entertainment expenses, you can reduce your FBT liability and stay on the right side of the ATO.

Make it a habit to record as you go. Your accountant – and your future self – will thank you.