ABC Pty Ltd is a small family company in Hobart managed by its directors Ben and May, who are also employees. During the 2017/18 FBT year, May is paid an allowance of $20,000 to entertain clients as she travels locally and interstate to promote the company.
Advise May whether the entertainment allowance is assessable income or fringe benefit?
The entertainment allowance is not a fringe benefit. It is ordinary income and is assessable to May under ITAA97 s 6-5 and s 15-2. Accordingly, the entertainment allowance forms part of May’s salary and wages. Salary and wages are specifically excluded from the definition of a fringe benefit (FBTAA s136)
It is important to distinguish an allowance from a reimbursement. The former is income and the latter can be a fringe benefit( See taxation ruiling TR 92/15).
1. A payment is an allowance when a person is paid a definite predetermined amount to cover an estimated expense. It is paid regardless of whether the recipient incurs the expected expense.
2. A payment is a reimbursement when the recipient is compensated exactly (meaning precisely, as opposed to approximately), whether wholly or partly, for an expense already incurred although not necessarily disbursed