$20,000 annual tax deductible entertainment expenses policy announced.

Posted on January 28, 2025 by - Business tax returns, Small business, Taxation of the arts industries

Welcome to 2025!

The year has begun with an intriguing policy proposal by the Federal Coalition – to allow entertainment expenses, excluding alcohol, of $20,000 per year for small businesses to be made tax deductible and exempt from fringe benefits tax (FBT).

Coming from a party that has no formal arts policy and appears targeted towards hospitality, this policy would nevertheless be a welcome stimulatory measure for the beleaguered visual arts, performing arts, music and film and television industries.

However, the devil will be in the detail, with amendments required to existing income tax, FBT and GST legislation before the proposal could successfully be implemented.

Currently, entertainment expenses are defined by the ATO as:

    1. Entertainment by way of food, drink or recreation; or
    2. Accommodation or travel associated with 1. above.

Recreation, according to the ATO ‘includes amusement, sport or similar leisure-time pursuits’. Allowing the costs of attending theatre, films, sports and the like to be tax deductible (within the proposed thresholds) would be an incredible incentive for people to participate in these activities.

Right now, entertainment expenses are not deductible, except in limited circumstances that are mostly particular to taxpayers working in the arts industries or where the expenses are better described as overnight travel costs for business.

However, to avoid doubt, many businesses register for FBT and account for their entertainment expenses by paying taxes and lodging annual FBT returns.

Fringe benefits tax is complicated, expensive and inefficient. Businesses that do not have external employees outside of its owners are recommended to avoid entering the FBT net by simply classifying their entertainment expenses as short-term loans owing to their businesses. But this can create a cascade of tax issues if not managed properly, including the unintended creation of Division 7A director loans.

FBT returns are lodged on a financial year that is different from income tax returns, ending on 31 March each year. This reflects the creation of the FBT regime in a pre-digital era. If the policy proposal of allowing $20,000 in entertainment expenses as tax deductible and exempt from FBT is to succeed, it is highly recommended that the FBT financial year is aligned to the income tax year.

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Artwork image:

Jane Giblin
Twelve Figures Beneath Sheoaks (2024)
Ink, pigment and pastel on paper
120cm by 340cm (Polyptych)

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