Enterainment Allowances

Q&A

Question :

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?

 

Answer :

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). 

Generally speaking:

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

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