Australia’s 1986 Fringe Benefits Tax (FBT) is nearly 40 years old and makes a client lunch a tax trap. Unless an employer pays FBT, entertainment is generally non-deductible and input GST credits are denied.
Pre-election, the Liberal Party proposed small changes to FBT on entertainment for staff entertainment, with broad support from the travel and hospitality industry, but after election the issue has received no coverage.
Abolishing FBT on entertainment—paired with allowing normal deductibility and GST credits—has the potential to change the hospitality industry, create employment and revitalise our cities. The result would also be a cleaner system and less onerous on reporting system for small businesses.
For businesses, the decision to host clients, run team functions or cater events hinges on the after-tax cost. Under today’s rules, a $100 (ex-GST) meal for staff can carry an FBT impost (via gross-up) that roughly doubles the before-tax outlay, say $110 – $140. Only then does the expense become deductible and GST-creditable. Client-only meals are often simply non-deductible.
Remove FBT on entertainment and make entertainment deductible with GST credits, and that $100 ex-GST meal feels closer to $70 after tax for many payers. That’s a 20–45% price cut on the employer’s side of the ledger, depending on circumstance. Demand for “food away from home” is also price-responsive; a conservative price elasticity of –0.8 to –1.0 implies an 8–43% lift in volumes on the corporate-entertainment slice of demand.
Spending: on the back of a menu
- Let’s start with a baseline for corporate-hospitality (client lunches, staff events, business events, F&B) of $6–10 billion annually.
- Then apply a weighted price fall of 10% (if policy is modest) to 40% (if fully deductible and with GST credits).
- If we apply a price elasticity in the –0.8 to –1.0 range, then the implied turnover uplift is roughly and $2–$4 billion per year if entertainment is deductible and GST creditable.
These are national aggregates, not just CBD venues, and critically. Crucially, they arrive without a new subsidy – just the removal of a distortion that over-taxes one form of legitimate business engagement.
Jobs: Hospitality is labour-intensive
The Hospitality industry employed 1.115 million people in the March quarter of 2025, in an industry that converts revenue into jobs faster than most sectors. Industry ratios commonly sit around $100k–$130k of turnover per full-time equivalent (FTE), depending on venue type and wage settings. A $2–$4 billion lift supports roughly 15,000–40,000 FTEs.
These aren’t speculative jobs; they’re front-of-house, back-of-house and event roles that roster on as bookings and per-head packages rise.
These are jobs that serve a multi-employment market whose nature allows significant flexibility for both employers and employees. The hiring skew should also be attractive for policymakers, driving skilled and unskilled employment for young people, pathways for migrants and casual/part-time flexibility like students and working mothers.
City reboot: Switching the lights back on
By lowering the after-tax cost of client lunches, team dinners and conference catering, employers bring people back into the city on weekdays, lifting the rhythm of office attendance and anchoring a predictable pulse of mid-week demand.
That spending also cascades into travel and tourism in restaurants and hotels, while nearby retailers and theatres convert the footfall into sales.
The effect is urban, more people create safer, busier streets; better utilisation of transport and public spaces; and a loop where visible activity encourages more people into our cities as a place they want to be.
GDP and national accounts: where it lands
In the national accounts, more restaurant and catering activity shows up chiefly in household consumption (if paid privately) or intermediate consumption by business that feeds into higher gross value added (GVA) in accommodation & food services. Because restaurants purchase a lot of inputs (food, beverages, utilities), value added is typically ~45–55% of turnover. Apply that to the turnover gains, where $2–$4 billion in turnover creates $0.9–$2.2 billion extra in real GDP.
The budget is tight, and any reduction in tax revenue in the current market will have a direct impact on the federal budget. However, in the longer term, the net-net impact to national tax revenue is meaningfully less than headline FBT receipts on entertainment, which is a smaller component of the $5.1 billion in FBT tax revenue. This is because the base expands and other taxes rise, more GST, more PAYG. Meanwhile, the economic benefits are concentrated where policymakers need them: CBD activation, tourism, and job-rich services.
Compliance: Real relief for small business
Ask any café, bar or events operator serving corporate customers: FBT-driven rules create a bookkeeping maze for their clients – different year-ends (to 31 March), elections (50/50, 12-week register, actual), employee vs client splits, statutory declarations, and gross-up calculations. When the rules are this intricate, SMEs wear disproportionate costs in time and accounting fees.
Limiting reform to entertainment yields simple and bankable savings:
- No FBT calculations on entertainment categories; fewer elections and apportionments.
- Straight-through invoicing with normal deductibility and GST credit rules.
- Lower error risk (fewer amended returns; less audit friction).
Scrapping FBT on entertainment—and treating a business meal like any other legitimate input—could add $2.0 –$4 billion to annual hospitality turnover, support 15,000–40,000 jobs, and lift GDP by $0.9–$2.2 billion, while rebuilding our cities and trimming red tape for small business.
Key takeaway: Hospitality businesses need change now
On a broader scale, scrapping FBT on entertainment could add almost $4 billion to annual hospitality turnover, support 15,000 to 40,000 jobs, and lift GDP by $0.9-$2.2 billion, while rebuilding our cities and trimming red tape for small businesses.
To achieve a sustainable, thriving hospitality industry, changes need to be made to the existing Fringe Benefit Tax laws. Entertainment expenses should be made deductible and GST-creditable, while being removed as a category under FBT.
At the same time, this change should be limited strictly to entertainment expenses to protect the integrity of the broader FBT system (including cars, housing, and loans) and keep the overall revenue risk contained.
If you operate a hospitality business and need restructuring support to secure your working capital from unexpected scenarios, contact our team at Olvera Advisors for a personal discussion.
