A question we are often asked by junior doctors is whether meals provided by their medical practice during work hours are deductible and is Fringe Benefit Tax (FBT) applicable. In this article, we take a look at the two main factors concerning income tax and FBT implications in regard to what constitutes meal and entertainment expenses, as well as the provisions of employment.
When do meals become deductable?
The answer is dependent upon the treatment of meal and entertainment expenses incurred by the business. That is, whether the meal could be constituted as entertainment. Under current laws (s8-1 of the ITAA 1997), entertainment expenses incurred are generally non-deductible unless a specific exception can be applied. One such exemption is if the meal expenses incurred were for entertainment purposes.
So, what determines if a meal supplied is deemed to have the character of entertainment? Typically, if a business provides light meals on the premises such as morning / afternoon tea or a light lunch (inclusive of sandwiches and other hand-held foods) during a working day, the expenses incurred are not deemed as entertainment. This is inclusive of takeaway meals purchased and consumed by staff members during their lunch break. More elaborate meals however, such as those that are two or three courses, are more likely to be characterised as entertainment.
In addition, the more social connotations the meal has, the more likely it will be considered entertainment, particularly once alcohol is involved. For example, if food is provided as part of a social function for staff such as an end of month party, then it will likely be considered entertainment.
Another exception which may be applicable to the deduction of meal expenses is the cost of providing light meals during the course of gaining assessable income. This is because these expenses are incurred by the doctors, who in turn pay the medical practice a service fee, therefore resulting in the expenses being incurred in the course of the medical practice gaining assessable income. This provision of meal expenses paid to the doctors should therefore be deductible by the medical practice. However, if the meal expenses are treated as entertainment then this deduction will not be available.
Are Fringe Benefits applicable?
In this case, the answer is dependent upon the terms of the doctor’s employment. That is, FBT is only payable if a non-exempt fringe benefit is provided to an employee or their associate in respect to their employment. For the purposes of FBT, an employee includes current, future or past employees and a director of a company or trust.
Whether a doctor will be treated as an employee is dependent on their arrangement with their practice. Where a doctor works under a service fee model, they are not likely to be considered as an employee under the FBT provisions as they contract the medical entity to provide services such as collection of billings, administration staff and use of the premises. As such there is no deemed employer/employee relationship. A doctor operating under this model may still fall under the provisions of FBT if they are also a director (or their associate) in the medical service entity. Doctors under the locum model are also unlikely to be treated as an employee provided they are considered to be independent contractors. Doctors receiving a wage will be treated as an employee and FBT will apply on certain benefits provided.
Overall, if the doctor is deemed to be an employee, and the meal expenditure constitutes a “light meal” as discussed above, then the benefit provided may be exempt under s41 of the Fringe Benefit Tax Assessment Act 1986. Accordingly, it is unlikely that FBT would be applicable to any expenses constituting “light meals”. If the meal expenses are more elaborate and are not treated as an exempt benefit, then FBT will be applicable.
Should you wish to discuss further, please do not hesitate to contact our Health Directors.